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MARKETING MANAGEMENT

UNIT 1 Modern Marketing Concept: Social Marketing concept Approaches to the study of marketing Marketing segmentation Meaning Bases for segmentation, benefits Systems approach Features of industrial, consumer and services marketing UNIT 2 Marketing !nvironment: !"ternal factor #emographic factors $nternal factors Marketing mi" Four %&s marketing Consumer Behaviour: Meaning and importance Consumer buying process #eterminants and theories of consumer behaviour %sychological, sociological determinants 'heories and their relevance to marketing Marketing (esearch: Meaning )b*ectives %rocedure UNIT 3 %roduct Mi" Management: %roduct planning and development Meaning and process 'est marketing %roduct failures %roduct life cycles Meaning and Stages Strategies Meaning %+C %roduct,Market $ntegration: Strategies %roduct positioning #iversification %roduct line simplification %lanned obsolescence Branding %olicies and Strategies %acking UNIT 4 %rice Mi" Management: %ricing and pricing policies )b*ectives %rocedures Methods of price fi"ing Administered and regulated prices %ricing and product life

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cycle -overnment control of pricing UNIT 5 %hysical #istribution Mi": #istribution channel policy Choice of channel Channel management Conflict and cooperation in channels Middlemen functions UNIT 6 %romotional Mi": %ersonal selling vs impersonal selling %ersonal selling %rocess Steps in selling Management of sales force (ecruitment and selection 'raining Compensation plans !valuation of performance Advertising $mportance )b*ectives Media planning and selection Factors influencing selection Advertisement copy +ayout !valuation of advertising Advertising budget Sales promotion Methods and practices

LESSON - 1 MARKETING CONCEPTS Learning Obje !i"e#

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After reading this lesson, you should be able to understand , Meaning and importance of marketing. 'he different concept of marketing. 'he modern marketing concept 'he social marketing concept Marketing has been deferent by different authors differently A popular definition is that /marketing is the performance of business activities that direct the flo0 of goods and services from producer to consumer or user1 Another notable definition is that /marketing is getting the right goods and services to the right people at the right place at the right time at the right price 0ith the right communication and promotion1 2et another definition is that 3marketing is a social process by 0hich individuals and groups obtain 0hat they need and 0ant through creating and e"changing products and values 0ith others& 'his definition of marketing rests on the follo0ing concepts: 4i5 4ii5 4iii5 4iv5 4v5 6eeds, 0ants and demands. %roducts. 7alue and satisfaction. !"change Markets

NEE$S% &ANTS AN$ $EMAN$S A human need is a state of felt deprivation of some basic satisfaction %eople

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re8uire foods, clothing, shelter, safety, belonging, esteem etc these needs e"ist in the very nature of human beings 9uman 0ants are desires for specific satisfiers of these needs For e"ample, cloth is a needs but (aymonds suiting may be 0ant :hile people&s needs are fe0, their 0ants are many #emands are 0ants for specific products that are backed up by an ability and 0illingness to buy them :ants become demands 0hen backed up by purchasing po0er' Pr()* !# %roducts are defined as anything that can be offered to some one to satisfy a need or 0ant +a,*e an) Sa!i#-a !i(n Consumers choose among the products, a particular product that give them ma"imum value and satisfaction 7alue is the consumer&s estimate of the product&s capacity to satisfy their re8uirements E. /ange an) Tran#a !i(n# !"change is the act of obtaining a desired product from someone by offering something in return A transaction involves at least t0o thing of value, conditions that are agreed to, a time of agreement and a place of agreement

Mar0e!

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A market consist of all the e"isting and potential consumers sharing a particular need or 0ant 0ho might be 0illing and able to engage in e"change to satisfy that need or 0ant 'hus, all the above concepts finally brings us full circle to the concept of marketing $M%)('A6C! )F MA(;!'$6< Marketing process brings goods and services to satisfy the needs and 0ants of the people = > ? @ A B $t helps to bring ne0 varieties and 8uality goods to consumers By making goods available at al places, it brings e8uipment distribution Marketing converts latent demand into effective demand $t gives 0ide employment opportunities $t creates time, place and possession utilities to the products !fficient marketing results in lo0er cost of marketing and ultimately lo0er prices to consumers C $t is vital link bet0een production and consumption and primarily responsible to keep the 0heel of production and consumption constantly moving D $t creates to keep the standard of living of the society

MARKETING MANAGEMENT Marketing management is defined as /the analysis, planning, implementation and control of programmes designed to create build and purpose of achieving organiEational

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ob*ectives1 Marketing manages have to carry marketing research, marketing planning, marketing implementation and marketing control :ithin marketing planning, marketer must make decisions on target markets, market postphoning product development, pricing channels of distribution, physical distribution, communication and promotion 'hus, the marketing managers must ac8uire several skills to be effective in market place CONCEPTS O1 MARKETING 'here are five distinct concepts under 0hich business organisation can conduct their marketing activity %roduction Concept %roduct Concept Selling Concept Marketing Concept Societal Marketing Concept

PRO$UCTION CONCEPT $n this approach, a firm is considered as the central point and all goods and commodities produced 0ere sold in the market 'he ma*or emphasis 0as on the production process and control on the technical perfections 0hile producing the goods 'he production concept holds that consumers 0ill favour those products that are 0idely available and lo0 in cost Management in production oriented organisation concentrates

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on achieving high production efficiency and 0ide distribution coverage Marketing is a native form in this orientation and it 0as assumed that a good product sells by itself )nly distribution and selling 0ere considered to be 3marketing& 'he technologists thoughts that amenability and lo0 cost of the products due to the large scales of production 0ould be the right 3Marketing Mi"& for the consumers But, they do not the best of customer patronage Customers are in fact motivated by a variety of considerations in their purchase As a result, the production concept fails to serve as the right marketing philosophy for the enterprise PRO$UCT CONCEPT 'he product concept is some0hat different from the production concept 'he product concept holds that consumer&s 0ill favour those products that offer the most 8uality, performance and features Management in these product,oriented organiEations focus their energy on making good products and improving them over time 2et, in many cases, these organiEations fail in the market 'hey do not bother to study the market and the consumer in,depth 'hey get totally engrossed 0ith the product and almost forget the consumer for 0hom the product is actually meant. they fail to find our 0hat the consumers actually need and 0hat they 0ould accept Mar0e!ing M2(3ia At this stage, it 0ould be appropriate to e"plain the phenomenon of 3marketing myopia& 'he term 3marketing myopia& is to be credited to %rofessor 'heodore +evitt $n one of his classic articles bearing the same title, in the 9arvard Business (evie0, %rofessor +evitt has e"plained 3marketing myopia& as a coloured or crooked perception of marketing and a short,sightedness about business !"cessive attention to production or product or selling aspects at the cost of the customer and his actual needs, creates this

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myopia $t leads to a 0rong or inade8uate understanding of the market and hence failure in the market place 'he myopia even leads to a 0rong or inade8uate understanding of the very nature of the business in 0hich a given organisation is engaged and thereby affects the future of the business 9e further e"plained that 0hile business keep changing 0ith the times, there is some fundamental characteristic in each business that maintains itself through the changing times, 0hich invariably relates to the basic human need 0hich the business seeks to serve and satisfy through its products A 0ise marketer should understand this important fact and define his business in terms of this fundamental characteristic of the business rather than in terms of the products and services manufactured and marketed by him For instance, the Air0ays should define their business as transportation the Movie makers should define their business as entertainment, etc

SALES CONCEPT 'he sales concept maintains that a company cannot e"pect its products to get picked up automatically by the customers 'he company has to consciously push its products Aggressive advertising, high,po0er personal selling, large scale sales promotion, heavy price discounts and strong publicity and public relations are the normal tools used by organisation that rely on this concept $n actual practice, these organiEations too do not en*oy the best of customer patronage 'he selling concept is thus undertaken most aggressively 0ith 3unsought goods&, i e those goods that buyers normally do not think of buying, such as insurance, encyclopedias 'hese industries have perfected various techni8ues to locate prospects and 0ith great difficulty sell them as the benefits of their products !vidently, the sales concept too suffers from marketing myopia

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$i--eren e be!4een Se,,ing an) Mar0e!ing 'he marketing and selling are considered synonymously But there is great of difference bet0een the t0o 'heodore +evitt in his sensational articles 3Marketing Myopia& dra0s the follo0ing contrast bet0een marketing and selling Selling focuses on the needs of the seller. marketing on the needs of the buyer Selling is preoccupied 0ith the seller&s need to convert his product into cash. marketing 0ith the idea of satisfying the needs of the customer by mean of the product and the 0hole cluster of thing associated 0ith creating delivering and finally consuming it Selling Selling starts 0ith the seller, Selling focuses 0ith the needs of the seller Seller is the center of the business universe Activities start 0ith seller&s e"isting products Selling emphasiEes on profit $t seeks to 8uickly convert 3products& into 3cash&. concerns itself 0ith the tricks and techni8ues of pushing the product to the buyers Marketing Marketing starts 0ith the buyers Marketing focuses on the needs of the buyer Buyer is the centre of the business universe Activities follo0 the buyer and his needs Marketing emphasiEes on identification of a market opportunity $t seeks to convert customer 3needs& into 3products& and emphasiEes on fulfilling the needs of the customers

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Selling vie0s business as a 3goods Marketing vie0s business as a 3customer producing processes& satisfying process& $t over emphasiEes the 3e"change& $t concerns primarily 0ith the 3vale aspect 0ithout caring for the 3value satisfactions& that should flo0 to the satisfactions& to the buyers customer from the e"change Seller&s convenience dominates the Buyer determines the shape of the

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formulation of the 3marketing mi"& A

3marketing mi"&

'he firm makes the product first the 'he customer determines 0hat is to be then decides ho0 to sell it and make offered as a 3product& and the firm makes a profit 3total product offering& that 0ould match the needs of the customers !mphasiEes accepting the e"isting !mphasis&s on innovation of adopting the technology and reducing the cost of most innovative technology production Seller&s motives dominate marketing Marketing communications acts as the tool communications for communicating the benefitsF satisfactions of the product to the consumers Costs determine price Consumer determines price

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'ransportation, storage and other 'hey are seen as vital services to provide distribution functions are perceived convenience to customers as mere e"tensions of the production function 'here is no coordination among the !mphasis is on integrated marketing different functions of the total approach marketing task #ifferent departments of the business All departments of the business operate in operate separately a highly integrated manner 0ith vie0 to satisfy consumers 'he firms 0hich practice 3selling 'he firms 0hich practice 3marketing concept&, production is the central concept&, marketing is the central function function 3Selling& vie0s the customer as the 3Marketing& vie0s the customer as the very last link in the business purpose of the business

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MARKETING CONCEPT 'he Marketing concept 0as born out of the a0areness that marketing starts 0ith the determination of consumer 0ants and ends 0ith the satisfaction of those 0ants 'he concept puts the consumer both at the beginning and at the end of the business cycle 'he business firms recogniEe that /there is only one valid definition of business purpose: to create a customer1 $t proclaims that /the entire business has to be seen from the point of vie0 of the customer1 $n a company practicing this concept, all departments 0ill recogniEe that their actions have a profound impact on the company&s to create and retain a customer !very department and every 0orker and manager 0ill 3think customer& and 3act customer& 'he marketing concept holds that the key to achieving organiEational goals consists in determining the needs and 0ants of the target markets and delivering the desired satisfactions efficiently, than competitors $n other 0ords, marketing concept is a integrated marketing effort aimed at generating customer satisfaction as the key to satisfying organiEational goals $t is obvious that the marketing concept represents a radically ne0 approach to business and is the most advanced of all ideas on marketing that have emerged through the years )nly the marketing concept is capable of keeping the organisation free from 3marketing myopia& 'he salient features of the marketing concept are: <5 Consumer orientation =5 $ntegrated marketing

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>5 Consumer satisfaction ?5 (ealiEation of organiEational goals

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Consumer )rientation 'he most distinguishing feature of the marketing concept is the importance assigned to the consumer 'he determination of 0hat is to be produced should not be in the hands of the firms but in the hands of the consumers 'he firms should produce 0hat consumers 0ant All activities of the marketer such as identifying needs and 0ants, developing appropriate products and pricing, distributing and promoting then should be consumer oriented $f these things are done effectively, products 0ill be automatically bought by the consumers

$ntegrated Marketing 'he second feature of the marketing concept is integrated marketing i e integrated management action Marketing can never be an isolated management function !very activity on the marketing side 0ill have some bearing on the other functional areas of management such as production, personnel or finance Similarly any action in a particular area of operation in production on finance 0ill certainly have an impact on marketing and ultimately in consumer 'herefore, in an integrated marketing set,up, the various functional areas of management get integrated 0ith the marketing function $ntegrated marketing presupposes a proper communication among the different management areas, 0ith marketing influencing the corporate decision making process 'hus, 0hen the firms ob*ective is to make profit by providing consumer satisfaction, naturally it follo0s that the different departments of he company are fairly integrated 0ith each other and their efforts are channeliEed through the principal marketing

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department to0ards the ob*ectives of consumer satisfaction

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Consumer Satisfaction 'hird feature of the marketing is consumer satisfaction 'he marketing concept emphasiEes that it is not enough if a firm ahs consumer orientation. it is essential that such an orientation leads to consumer satisfaction For e"ample, 0hen a consumer buys a tin of coffee, he e"pects a purpose to be served, a need to be satisfied $f the coffee does not provide him the e"pected fiavour, the taste and the refreshments his purchase has not served the purpose. or more precisely, the marketer 0ho sold the coffee has failed to satisfy his consumer 'hus, 3satisfaction& is the proper foundation on 0hich alone any business can build its future

(ealiEation of )rganiEational -oals including %rofit $f a firm has succeeded in generating consumer satisfaction, is implies that the firm has given a 8uality product, offered competitive price and prompt service and has succeeded in creating good image $t is 8uite obvious that for achieving these results, the firm 0ould have tried its ma"imum to control costs and simultaneously ensure 8uality, optimiEe productivity and maintain a good organiEational climate And in this process, the organiEational goals including profit are automatically realiEed 'he marketing concept never suggests that profit is unimportant to the firm 'he concept is against profiteering only, but not against profits

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5ene-i!# (- Mar0e!ing C(n e3! 'he concept benefits the organisation that practices it, the consumer at 0hom it is aimed and the society at the society at large < Benefits to the organisation: $n the first place, of the practice of the concept brings substantial benefits to the organisation that practices it For e"ample, the concept enable the organisation to keep abreast of changes An organisatoin prHcising the concept keeps feeling the pulse of the market through continuous marketing audit, market research and consumer testing $t is 8uick to respond to changes in buyer behaviour, it rectifies any dra0back in its these products, it gives great importance to planning, research and innovation All these response, in the long run, prove e"tremely beneficial to the firm Another ma*or benefits is that profits become more and certain, as it is no longer obtained at the cost of the consumer but only through satisfying him 'he base of consumer satisfaction guarantees long term financial success = Benefits to Consumers: 'he consumers are in fact the ma*or beneficiary of the marketing concept 'he attempts of various competing firms to satisfy the consumer put him an enviable position 'he concept prompts to produces to constantly improve their products and to launch ne0 products All these results in benefits to the consumer such as: lo0 price, better 8uality, improvedFne0 products and ready stock at convenient locations 'he consumer can choose, he can bargain, he can complain and his complaint 0ill also be attended to 9e can even return the goods if not satisfied $n short, 0hen organiEations adopt marketing concept, as natural corollary, their business practices change in favour of the consumer > Benefits to the society: 'he benefit from the marketing concept is not limited to the individual consumer of products :hen more and more organiEations resort to

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the marketing concept, the society in 'oto benefits 'he concept guarantees that only products that are re8uired by the consumers are produced. thereby it ensures that the society&s economic resources are channeliEed in the right direction $t also creates entrepreneurs and managers in the given society Moreover, it acts as a 3change agent& and a 3value adder&. improves the standard of living of the people. and accelerates the pace of economic development of the society as a 0hole $t also makes economic planning more meaningful and more relevant to the life of the people $n fact, the practice of consumer oriented marketing benefits society in yet another 0ay by enabling business organiEations to appreciate the societal content inherent in any business :hen the organisations move closer to the customers, they see clearly the validity of the follo0ing observation of #rucker, /'he purpose of any business lies outside the business in society 1 And this a0areness of the societal content of business often enthuses organiEations to make a notable contribution to the enrichment of society

S( ie!a, Mar0e!ing (n e3! 6o0 the 8uestion is 0hether the marketing concept is an appropriate organiEational goal in an age of environmental deterioration, resource shortages, e"plosive population gro0th etc and 0hether the firm is necessarily acting in the best long run interests of consumers and society For e"ample, many modern disposable packing materials create problem of environmental degradation Situations like this, call for a ne0 concept, 0hich is called 3Social Marketing Concept& 'he societal marketing concept holds that the organiEation&s task is to determine the needs, 0ants and interests of target markets and to deliver the desired satisfaction

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more effectively and efficiently than competitors in a way that preserves or enhances the consumers and the societys well being. A,fe0 magaEines such as ;alki, Ananda 7ikadan, do not accept any advertisements for Cigarettes or alcoholic li8uors though it is loss of revenue for them 'his is a typical e"ample of societal marketing concept 'he societal marketing concept calls upon marketers to balance three considerations in setting their marketing policies namely firm&s profits, consumer 0ant satisfaction and society interest

META 6 MARKETING +ike societal marketing, the concept of meta,marketing is also of recent origin $t has considerably helped to develop ne0 insight into this e"citing field of learning 'he literal meaning of the term 3meta& is /more comprehensive1 and is /used 0ith the name of a discipline to designate a ne0 but related discipline designed to deal critically 0ith the original one1 $n marketing, this term 0as originally coined by ;elly 0hile discussing the issues of ethics and science of marketing ;otler gave the broadened application of marketing nations to non,business organisations, persons, causes etc $n broadening the concept of marketing, marketing 0as assigned a more comprehensive role 9e used the term meta,marketing to describe the processes involved in attempting to develop or maintain e"change relations involving productsF services organiEations, persons, places or causes 'he e"amples of non,business marketing or meta,marketing may include Family :elfare %rogrammes and the idea of prohibition

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$EMARKETING 'he demarketing concept is also of recent origin $t is a concept 0hich is of great relevance to developing economies 0here demands for productsF services e"ceed supplies

#emarketing has been defined as /that aspect of marketing that deals 0ith discouraging customer, in general, or a certain class of customers in particular on either a temporary or permanent basis 'he demarketing concept espouses that management of e"cess demand is as much a marketing problem as that of e"cess supply and can be achieved by the use of similar marketing technology as used in the case of managing e"cess supply $t may be employed by a company to reduce the level of total demand 0ithout alienating loyal customers 4-eneral #emarketing5, to discourage the demand coming from certain segments of the market that are either unprofitable or possess the potential of in*uring loyal buyers 4Selective #emarketing5, to appear to 0ant less demand for the sake of actually increasing it 4)stensible #emarketing5 :hatever may be the ob*ective, there is al0ays a danger of damaging customer relations in any demarekting strategy 'herefore, to be creative, every company has to ensure that its long,run customer relations remain undamaged

RE+IE& 7UESTIONS8 < = > #efine marketing Bring out its importance Briefly discuss the various concept of marketing #iscuss in detail the modern marketing concept

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IIIIIIIIIIIIIIIII

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LESSON 6 2 APPROAC9ES TO T9E STU$: O1 MARKETING


Learning Obje !i"e# After reading this lesson, you should be able to understand 'he approaches to the study of marketing 'he significance of different approaches

'here are different approaches s to the study of marketing 'hese approaches have immensely contributed to the evolution of the modern approach and the concept of marketing 'o facilitate the study, these approaches may be broadly classified as follo0s: 4i5 4ii5 4iii5 4iv5 4v5 Commodity approach Functional approach $nstitutional approach Managerial approach. and Systems approach

C(;;()i!2 A33r(a / 'he first approach is the commodity approach under 0hich a specific commodity is selected and then its marketing methods and environments are studied in the course of its movement from producer to consumer $n this approach, the sub*ect matter of discussion centres around the specific commodity selected for the study and includes the

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sources and conditions of supply, nature and e"tent of demand, the distribution channels used, promotional methods adopted etc 1*n !i(na, A33r(a / 'he second approach is the functional approach under 0hich the study concentrates on the specialiEed functions or services performed by the marketers and the problems faced by them in performing those functions Such marketing functions include buying, selling, storage, standardiEing, transport, finance, risk,bearing, market information etc 'his approach certainly enables one to gain detailed kno0ledge on various functions of marketing In#!i!*!i(na, A33r(a / 'he third approach is the institutional approach under 0hich the main interest centres around the institutions or agencies that perform marketing functions Such agencies include 0holesalers, retailers, mercantile agents and facilitating institutions like transport undertakings, banks, insurance companies etc 'his approach helps one to find out the operating methods adopted by these institutions and the various problems faced by them and to kno0 ho0 they 0ork together in fulfilling their ob*ectives

Manageria, A33r(a / $n the managerial approach, the focus of marketing study is on the decision, making process involved in the performance of marketing functions at the level of a firm 'he study encompasses discussion of the different underlying concepts, decision influencing factors. alternative strategies their relative importance, strengths and 0eaknesses, ad techni8ues and methods of problem,solving 'his approach entails the study of marketing at the micro,level of a business firm of the managerial functions of

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analysis, planning, implementation, coordination and control in relation to the marketing functions or creating, stimulating, facilitating and valuing transactions

S2#!e;# A33r(a / Modern marketing is comple", vast and sophisticated and it influences the entire economy and standard of living of people 9ence marketing e"perts have developed one more approach namely 3System approach& Jnder this approach, marketing itself is considered as a sub,system of economic, legal and competitive marketing system 'he marketing system operates in an environment of both controllable and uncontrollable forces of the organisation 'he controllable forces include all aspects of products, price, physical distribution and promotion 'he uncontrollable forces include economic, sociological, psychological and political forces 'he organisation has to develop a suitable marketing programme by taking into consideration both these controllable and uncontrollable forces to meet the changing demands of the society 'he systems approach, in fact, e"amines this aspect and also integrates commodity, functional institutional and managerial approaches Further, this approach emphasis the importance of the use of 3market information& in marketing programmes 'hus, from the foregoing discussion, one could easily understand that the marketing could be studied in any of the above approach and the systems approach is considered to be the best approach as it provides a strong base for logical and orderly analysis and planning of marketing activities RE+IE& 7UESTIONS < = #iscuss the various approaches to the study of marketing !"plain 3Systems Approach& to the study of marketing

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LESSON 6 3 MARKET SEGMENTATION


Learning Obje !i"e# After reading this lesson, you should to able to understand, 'he meaning, bases and benefits of the concept of market segmentation. 'he concept of target market. Meaning and types of positioning and its implications

All firms must formulate a strategy for approaching their markets )n the one hand, the firm may choose to provide one product to all of its customer. on the other hand, it may determine that the market is so heterogeneous that it has no choice but to divide or segment potential users into submarkets Segmentation is the key to the marketing strategy of many companies Segmentation is a demand,oriented approach that involves modifying the firm&s product andFor marketing strategies to fit the needs of individual market segments rather than those of the aggregate market According to :illiam Stanton, /Market segmentation is the process of dividing the total heterogeneous market for a product into several sub,markets or segments each of 0hich tend to be homogeneous in all significant aspects Market segmentation is basically a strategy of 3divide and rule& 'he strategy involves the development of t0o or more different marketing programmes for a given product or service, 0ith each marketing programme aiming at each segment A strategy of market

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segmentation re8uires that the marketer first clearly define the number and nature of the customer groupings to 0hich he intends to offer his product or service 'his is a necessary condition for optimiEing efficiency of marketing effort RATIONALE 1OR MARKET SEGMENTATION 'here are three reasons 0hy firms use market segmentations: Because some markets are heterogeneous Because market segments respond differently to different promotional appeals. and Because market segmentation consider 0ith the marketing concept 9e!er(gene(*# Mar0e!#8 Market is heterogeneous both in the supply and demand side )n supply side, many factors like differences in production e8uipments, processing techni8ues, nature of resources or inputs available to different manufactures, une8ual capacity among the competitors in terms of design and improvement and deliberate efforts to remain different from other account for the heterogeneity Similarly, the demand side, 0hich constitute consumers is also different due to differences in physical and psychological traits of consumer Modern business managers realiEe that under normal circumstances they cannot attract all of the firm&s potential customers to one product, because different buyers simply have different needs and 0ants 'o accommodate this heterogeneity, the seller must provide different products For e"ample, in t0o 0heelers, the '7S Company first introduced '7S@G Moped, but later on introduced a variety of t0o 0heelers, such as '7S K+, '7S %o0erport, '7S Champ, '7S Sport, '7S Scooty, '7S SuEuki, '7S 7ictor, to suit the re8uirements of different classes of customers

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2' +arie) Pr(;(!i(na, A33ea,#8 A strategy of market segmentation does not necessarily mean that the firm must produce different products for each market segment $f certain promotional appeals are likely to affect each market segment differently, the firm may decide to build fle"ibility into its promotional strategy rather than to e"pand its product line For e"ample, many political candidates have tried to sell themselves to the electorate by emphasiEing one message to labour, another to business, and a third to farmers As another e"ample, the Sheraton 9otel serves different district market segments, such as conventioneers, business people and tourists !ach segments has different reasons for using the hotel Conse8uently, Sheraton uses different media and different messages to communicate 0ith the various segments

3' C(n#i#!en 2 4i!/ !/e Mar0e!ing C(n e3! A third reason for using market segmentation is that it is consistent 0ith the marketing concept Market segmentation recogniEes the e"istence of distinct market groups, each 0ith a distinct set of needs 'hrough segmentation, the firm directs its product and promotional efforts at those markets that 0ill benefit most from or that 0ill get the greatest en*oyment from its merchandise 'his is the heart of the marketing concept )ver the years, market segmentation has become an increasingly popular strategic techni8ue as more and more firms have adopted the marketing concept )ther historical forces being the rise of market segmentation include ne0 economies of scale, increased education and affluence, greater competition, and the advent of ne0 segmentation

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technology Bases of Market Segmentation 'here are a number of bases on 0hich a firm may segment its market < -eographic basis a b c = 6ations States (egions

#emographic basis a b c d e f g h Age Se" $ncome Social Class Material Status Family SiEe !ducation )ccupation

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%sychographic basis a b +ife style %ersonalities

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c d e f

+oyalty status Benefits sought Jsage rate 4volume segmentation5 Buyer readiness stages 4una0are, a0are, informed, interested, desired, intend to buy5

Attitude stage 4!nthusiastic, positive, indifferent, negative, hostile5

MET9O$S O1 SEGMENTATION )n the basis of the bases used for the market segmentation, various characteristics of the customers and geographical characteristics etc , common methods of market segmentations could be done Common methods used are:

Ge(gra3/i a, Seg;en!a!i(n :hen the market is divided into different geographical unit as region, continent, country, state, district, cities, urban and rural areas, it is called as geographical segmentation !ven on the geographic needs and preference products could be made !ven through 'ata 'ea is sold on a national level, it is flavoured accordingly in different regions 'he strength of the tea differs in each regions of the country Ba*a* has sub, divided the entire country into t0o distinct markets )0ing to the better road conditions in the north, the super F! Sector is promoted better 0ith small 0heels. 0hereas in the case of south, Ba*a* promotes Chetak F! 0ith large 0heels because of the bad road conditions

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$e;(gra3/i Seg;en!a!i(n #emographics is the most commonly used basis for market segmentation #emographic variables are relatively easy to understand and measure, and they have proven to be e"cellent segmentation criteria for many markets $nformation in several demographic categories is particularly useful to marketers #emographic segmentation refers to dividing the market into groups on the basis of age, se", family siEe cycle, income, education, occupation, religion, race, cast and nationality $n better distinctions among the customer groups this segmentation helps 'he above demographic variables are directly related 0ith the consumer needs, 0ants and preferences Age: Market segments based on age are also important to many organiEations Some aspects of age as a segmentation variable are 8uite obvious For e"ample, children constitute the primary market for toys and people A@ years and older are ma*or users of medical services Age and life cycle are important factors For instance in t0o 0heeler market, as Ba*a* has 3Sunny& for the college girls. 3Ba*a* Chetak& for youngsters. 3Ba*a* Chetak& for the office going people and Ba*a* MCG for rural people $n appealing to teenagers, for e"ample, the marketing e"ecutive must continually monitor their ever,changing beliefs, political and social attitudes, as 0ells as the entertainers and clothing that are most popular 0ith young people at a particular time Such factors are important in developing effective advertising copy and illustrations for a product directed to the youth market Se" segmentation is applied to clothing, cosmetics, magaEines and hair dressing 'he magaEines like :omen&s !ra, Femina, 4in Malayalam5, Mangaiyar Malar 4in 'amil5 are mainly segmented for 0omen (ecently even a cigarette e"clusively for 0omen 0as brought out Beauty %arlours are not synonyms for the ladies

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$ncome segmentation: $t has long been considered a good variable for segmenting markets :ealthy people, for e"ample, are more likely to buy e"pensive clothes, *e0elleries, cars, and to live in large houses $n addition, income has been sho0n to be an e"cellent segmentation correlate for an even 0ider range of commodity purchased products, including household toiletries, paper and plastic items, furniture, etc Social Class segmentation: 'his is a significant market segment For e"ample, members of different social classes vary dramatically in their use of bank credit cards %eople in lo0e?r social classes tend to use bank credit cards as installment loans, 0hile those in higher social classes use them for convenience purposes 'hese differences in behaviour can be significant 0hen segmenting a market and developing a marketing program to serve each segment P#2 /(gra3/i Seg;en!a!i(n )n the basis of the life style, personality characteristics, buyers are divided and this segmentation is kno0n as psychographics segmentation Certain group of people reacts in a particular manner for an appeal pro*ected in the advertisements and e"hibit common behavioural patterns Marketers have also used the personality variables as independent, impulsive, masculine, aggressive, confident, naLve, shy etc for marketing their products )ld spice promotes their after shave lotion for the people 0ho are self confident and are very conscious of their dress code 'hese advertisements focus mainly on the personality variables associated 0ith the product 5e/a"i(*ra, Seg;en!a!i(n Buyer behavioural segmentation is slightly different from psychographic segmentation 9ere buyers are divided into groups on the basis of their kno0ledge, attitude, use or response to a product Benefit segmentation: 'he assumption underlying the benefit segmentation is

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that markets can be defined on the basis of the benefits that people seek from the product Although research indicates that most people 0ould like to receive as many benefits as possible from a product, it has also been sho0n that the relative importance that people attach to particular benefits varies substantially 'hese differences can then be sued to segment markets )nce the key benefits for a particular productF market situation are determined, the analyst must compare each benefit segment 0ith the rest of the market to determine 0hether that segment has uni8ue and identifiable demographic characteristics, consumption patterns, or media habits For e"ample, the market for toothpaste can be segmented in terms of four distinct product benefits. flavour and product appearance, brightness of teeth, decay prevention and price 'he ma*or advantage of benefit segmentation is that it is designed to fit the precise needs of the market (ather than trying to create markets, the firm indentifies the benefit or set of benefits that prospective customers 0ant from their purchases and then designs products and promotional strategies to meet those needs A second and related advantage is that benefit segmentation helps the firm avoid cannibaliEing its e"isting products 0hen it introduces ne0 ones Buyers can be divided based on their needs, to purchase product for an occasion 'he number of times a product is used could be also considered as a segmentation possibility A tooth paste manufacturer urges the people to brush the teeth t0ice a day for avoiding tooth decay and freshness !ither a company can position in single benefit or double benefit 0hich the product offers 'he status of the buyers using the product and the number of times they use the product can also reveal that behavioural patterns of consumers vary on a large scale Li-e-S!2,e Seg;en!a!i(n

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+ife,style segmentation is a relatively ne0 techni8ue that involves looking at the customer as a /0hole1 person rather than as a set of isolated parts $t attempts to classify people into segments on the basis of a broad set of criteria1 'he most 0idely used life,style dimensions in market segmentation are an individual&s activities, interests, opinions, and demographic characteristics $ndividuals are analyEed in terms of 4i5 ho0 they spend their time, 4ii5 0hat areas of interest they see as most important, 4iii5 their opinions on themselves and of the environment around them, and 4iv5 basic demographics such as income, social class and education Jnfortunately, there is no one best 0ay to segment markets 'his facts has caused a great deal of frustration for some marketing e"ecutives 0ho insist that a segmentation variable that has proven effective in one marketFproduct conte"t should be e8ually effective in other situations 'he truth is that a variable such as social class may describe the types of people 0ho shop in particular stores, but prove useless in defining the market for a particular product 'herefore, in using a segmentation criteria in order to identify those that 0ill be most effective in defining their markets UN$ERSTAN$ING MARKETING 9ere the company operates in most of the segments of the market by designing separate programmes for each different segment Ba*a*, '7S,SuEuki, 9ero Cycle are those companies follo0ing this strategy Jsually differentialted marketing creaters mreo sales than undifferentiated marketing, but the production costs, product modification and administrative costs, inventory costs, and product promotional budgets and costs 0ould be very high 'he main aim of this type of marketing is the large volume turnover for a particular brand Requirements for effective segmentations < Measurability the degree to 0hich the siEe and purchasing po0er of the

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segments can be measured = Accessibility the degree to 0hich the segments can be effectively reached and served > Substantiality the degree to 0hich the segments are large andFor profitable enough ? Actionability the degree to 0hich effective programmes can be formulated for attracting and serving the segments 5ENE1ITS O1 MARKET SEGMENTATION Market segmentation gives a better understanding of consumer needs, behaviour and e"pectations to the marketers 'he information gathered 0ill be precise and definite $t helps for formulating effective marketing mi" capable of attaining ob*ectives 'he marketer need not 0aste his marketing effort over the entire area 'he product development is compatible 0ith consumer needs, pricing matches consumer e"pectations and promotional programmes are in tune 0ith consumer 0illingness to receive, assimilate and positively react to communications Specifically, segmentation analysis helps the marketing manager 'o design product lines that are consistent 0ith the demands of the market and that do not ignore important segments 'o spot the first signs of ma*or trends in rapidly changing markets 'o direct the appropriate promotional attention and funds to the most profitable market segments 'o determine the appeals that 0ill be most effective 0ith each market segments

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'o select the advertising media that best matches the communication patterns of each market segment 'o modify the timing of advertising and other promotional efforts so that they coincide 0ith the periods of greatest market response $n short, the strength of market segmentation lies in matching products to consumer needs that augment consumer satisfaction and firm&s profit position 9o0ever, the ma*or limitation of market segmentation is the inability of a firm to take care of all segmentation bases and their innumerous variables Still, the strengths of market segmentation out0eigh its limits and offers considerable opportunities for market e"ploitation 1EATURES O1 CONSUMER MARKETING Consumer goods are destined for use by ultimate consumers or house,holds and in such form that they can be used 0ithout commercial processing Consumer goods and services are purchased for personal consumption #emand for consumer goods and services are direct demand Consumer buyers are individuals and households $mpulse buying is common in consumer market Many consumer purchases are influenced by emotional factors 'he number of consumer buyers is relatively very large 'he number of factors influencing buying decision,making is relatively small #ecision,making process is informal and often simple

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(elationship marketing is less significant 'echnical specifications are less important )rder siEe is very small Service aspects are generally less important #irect marketing and personal selling are less important Consumer marketing depends heavily on mass media advertising Sales promotion is very common Supply efficiency, is not as critical as in industrial marketing #istribution channels are generally lengthy and the numbers of resellers are very large

Systems selling is not important 'he scope for reciprocity is very limited 7endor loyalty is relatively less important +ine e"tensions are very common Branding plays a great role %ackaging also plays a promotional role Consumers are dispersed geographically #emand for consumer goods is price elastic

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1EATURES O1 IN$USTRIAL MARKETING $n industrial marketing, the markets is concerned 0ith the marketing of industrial goods to industrial users 'he industrial goods are those intended for use in producing of other goods roe rendering of some service in business 'he industrial users are those individuals and organiEations 0ho buy the industrial goods for use in their o0n business 'he segments for industrial goods include manufacturing, mining and 8uarrying, transportation, communication, agriculture, forestry, finance, insurance, real estate etc $ndustrial goods are services are bought for production of other goods and services #emand for industrial goods and services is derived demand $ndustrial buyers are mostly firms and other organiEations $mpulse buying is almost absent in industrial market $ndustrial buying decisions are based on rational, economic factors 'he number of business buyers is relatively small 'he number of factors influencing buying decision,making is relatively large #ecision,making process tends to be comple" and formal (elationship marketing is more relevant and significant 'echnical specifications are more important )rder siEe is often very large Service aspects and performance guarantees are very important

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#irect marketing and personal selling are highly important Specific media like trade *ournals are more important for industrial marketing Sales promotion is not common Supply efficiency is very critical because supply problem can even cause suspension of the entire business

#istribution channels are generally tend to be direct or short and the number of resellers are small

Systems selling is very important 'he scope for reciprocity is very large 7endor loyalty tends to be high +ine e"tension is limited by *ustification of clear benefit to the buyer Conformity to product specifications and reputation of the manufacturer supplier are more important

%ackaging hardly has a promotional role Business buyers in many cases are geographically concentrated %rice sensitivity of demand for industrial goods is lo0

1EATURES O1 SER+ICES MARKETING Service market is represented by activities, benefits and satisfactions offered for sale by providers of services 'hese services may be labour services, personal services,

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professional services or institutional services 'he peculiar characteristics of services create challenges and opportunities to the service markets 'hese are given belo0: INTANGI5ILIT: Services are essentially intangible Because services are performance or actions rather than ob*ects, they cannot be seen, felt, tasted, or touched in the same manner that 0e can see sense tangible goods For e"ample, health,care services are actions 4e g surgery, diagnosis, e"aminations, treatment5 performed by providers and directed to0ard patients and their families 'hese services cannot actually be seen or touched by the patient may be able to seen and touch certain tangible, components of the services 4e g e8uipment, hospital room5 $n fact, many services such as health care are difficult for the consumer to grasp even mentally !ven after a diagnosis or surgery has been completed the patient may not fully comprehend the service performed INSEPARA5ILIT: Services are created and consumed simultaneously and generally they cannot be separated from the provider of the service 'hus the service provider customer interaction is a special feature of services marketing Jnlike the tangible goods, services cannot be distributed using conventional channels $nseparability makes direct sales as the only possible channel of distribution and thus delimits the markets for the seller&s services 'his characteristics also limits the scale of operation of the service provider For e"ample, a doctor can give treatment to limited number of patients only in a day 'his characteristic also emphasiEes the importance of the 8uality of provider client interaction in services 'his poses another management challenge to the service marketer :hile a consumer&s satisfaction depends on the functional aspects in the purchase of goods, in the case of services the above mentioned interaction plays an

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important role in determining the 8uality of services and customer satisfaction For e"ample, an airline company may provide e"cellent flight service, but a discourteous onboard staff may keep off the customer permanently from that company 'here are e"emptions also to the inseparability characteristic A television coverage, travel agency or stock broker may represent and help marketing the service provided by another service firm 9ETEROGENEIT: 'his characteristic is referred to as variability by ;otler :e have already seen that services cannot be standardiEed 'hey are highly variable depending upon the provider and the time and place 0here they are provided A service provided on other occasions Also the standard of 8uality perceived by different consumers may differ according to the order of preference given by them to the various attribute of service actuality For e"ample, the treatments given by a hospital to different persons on different occasion cannot be of the same 8uality Consumers of services are a0are of this variability and by their interaction 0ith other consumers they also esseneflunced or influence others in the selection of service provider PERIS9A5ILIT: AN$ 1LUCTUATING $EMAN$ %erisbabilaty refers to the fact that services cannot be saved, stored, resold or returned A seat on an airplane or in a restaurant, an hour or a la0yer&s time, or telephone line capacity not used cannot be reclaimed and used or resold at later time 'his is in contract to goods that can be stored in inventory or resold another day, or even returned if the consumer is unhappy TARGET MARKETING 'arget marketing refers to selection of one or more of many market segments and

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developing products and marketing mi"es suited to each segments STEPS IN TARGET MARKETING 'arget marketing essentially consist of the follo0ing steps: 1' $e-ine !/e re,e"an! ;ar0e! 'he market has to be defined in terms of product category, the product form and the specific brand 2' Ana,2<e /ara !eri#!i # an) 4an!# (- 3(!en!ia, *#!(;er# 'he customers 0ants and needs are to be analyEed in terms of geographic location, demographics, psychographics and product related variable 3' I)en!i-2 ba#e# -(r #eg;en!ing !/e ;ar0e! From the profiles available identify those has strength ade8uate to a segment and reflection the 0ants to k*dfgk*sdfg*sdkg*sfdkg*sf 4' $e-ine an) )e# ribe ;ar0e! #eg;en!# As any one basis, say income is meaningless by itself, a combination of various bases has to be arrived as such that each segment is distinctly different from other segments in buying behaviour and 0ants 5' Ana,2<e (;3e!i!(r=# 3(#i!i(n# $n such segment gdfkg*"fkgnfdkg d"ngmdf gkdf*gkdf*dfk*gdfk by the consumers are to found our k*gfks*dfgds fgs consumers and the list of attributes 0hich they consider important is determined 6' E"a,*a!e ;ar0e! #eg;en!#

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'he market segments have to be evaluated in terms of revenue potential and cost of the marketing effort 'he former involves estimating the demand for the product 0hile the latter is an estimate of costs involved in reaching each segment >' Se,e ! !/e ;ar0e! #eg;en! Choosing dfk*gdfk*gfd the available segments in the market one has to bear in mind the ksdf*gks*gk*d and resources, the presence or absence of competitors in the sdk*gks*df and the capacity of the gro0 in siEe ?' 1ina,i#e !/e ;ar0e!ing ;i. 'his involves decisions on product, distribution, promotions and price %roduct decisions 0ill gk*sdf into account product attributed fdgkd*f 0anted by consumers, choice of appropriate brand name and image 0ill help in promoting the product to the chosen segment and pricing can be done keeping the purchase behaviour in mind 9ence, it can be seen that targeted marketing consists of segmenting the market, choosing 0hich segments to serve and designing the marketing mi" in such a 0ay that it is attractive to the chosen segments 'he third step takes into account the uni8ueness of a company&s marketing mi" in a relation to that of competitors 'he uni8ueness or differentiation may be tangible or intangible depending upon the physical attributes or the psychological attributes of the product !stablishing and communicating these distinctive aspects is termed positioning

MARKETING MI@ Marketing mi" is one of the ma*or concepts in modern marketing $t is the combination of various elements 0hich constitutes the company&s marketing system $t is set of controllable marketing variables that the firm blends to produce the

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response it 0ants in the target market 'hough there are many basic marketing variables, it is McCarthy, 0ho populariEed a four,factor classification called the four %s: Product, Price, Place and Promotion. !ach % consists of a list of particular marketing variables T/e -ir#! P 6 Pr()* ! (n#i#!# (4i5 4ii5 4iii5 %roduct planning and development. %roduct mi" policies and strategies. and Branding and packaging strategies

'he second % %rice consists of 4i5 4ii5 %ricing policies and ob*ectives. and Methods of setting prices

'he third % %lace consists of 4i5 4ii5 4iii5 #ifferent types of marketing channels. (etailing and 0holesaling institutions. and Management of physical distribution systems

'he fourth % %romotion consists of 4i5 4ii5 4iii5 Advertising. Sales promotion. and %ersonal selling

A detailed discussion on each of the above four %&s follo0s no0:

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PRO$UCT %roduct stands for various activities of the company such as planning and developing the right product andFor services, changing the e"isting products, adding ne0 ones and taking other actions that affect the assortments of products #ecisions are also re8uired in the areas such as 8uality, features, styles, brand name and packaging A product is something that must be capable of satisfying a need or 0ant, it includes physical ob*ects, services, personalities places, organisation and ideas 'hus, a transport service, as it satisfiers human need is a product Similarly, places like ;ashmir and ;odaikanal, as they satisfy need to en*oy the cool climate are also products 'he second aspect of product is product planning and development %roduct planning embraces all activities that determine a company&s like of products $t include, a5 %lanning and developing a ne0 product. b5 Modification of e"isting product lines. and c5 !limination of unprofitable items %roduct development encompasses the technical activities of product research, engineering and decision 'he third aspect of product is product mi" policies and strategies %roduct mi" refers to the composite of products offered for sale by a company For e"ample -odre* company offers cosmetics, steel furnitures, office e8uipments, locks etc 0ith many items in each category 'he product mi" is four dimensional $t has breadth, length, depth and consistency

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2et another integral part of product is packaging PRICE 'he second element of marketing mi" is price %rice stands for the monetary value that customers pay to obtain the product $n pricing, the company must determine the right price for its products and then decide on strategies concerning retail and 0holesale prices, discounts, allo0ances and credit terms Before fi"ing prices for the product, the company should be clear about its pricing ob*ectives and strategies 'he ob*ectives may be set lo0 initial price and raising it gradually or o set high initial price and reducing it gradually or fi"ing a target rate of return or setting prices to meet the competition etc But the actual price setting is based on three factors namely cost of production, level of demand and competition (egarding retail pricing, the company may adopt t0o policies )ne policy is that he may allo0 the retailers to fi" any price 0ithout interfering in his right Another policy is that he may 0ant to e"ercise control over the products #iscounts and allo0ances result in a deduction from the base price PLACE 'he third element of marketing mi" is place or physical distribution %lace stands for the various activities undertaken by the company to make the product accessible and available to target customers 'here are four different level channels of distribution 'he first is Eero,level channel 0hich means manufacture directly selling the goods to the consumers 'he second is one,level channel 0hich means supplying the goods to the consumer through the retailer 'he third is t0o,level channel 0hich means supplying the goods to the consumer through 0holesaler and retailer 'he fourth is three,level channel

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0hich means supplying goods to the consumers through 0holesaler,*obber,retailer and consumer 'here are large,scale institutions such as departmental stores, chain stores, mail order business, super,market etc and small,scale retail institutions such as small retail shop, automatic vending, franchising etc 'he company must chose to distribute their products through any of the above retailing institutions depending upon the nature of the products, area of the market, volume of scale and cost involved 'he actual operation of physical distribution system re8uired company&s attention and decision,making in the areas of inventory, location of 0arehousing, materials handling, order processing and transportation PROMOTION 'he fourth element of the marketing mi" is promotion %romotion stands for the various activities undertaken by the company to communicate the merits of its products and to persuade target customers to buy them Advertising, sales promotion and personal selling are the ma*or promotional activities A perfect coordination among these three activities can secure ma"imum effectiveness of promotional strategy For successful marketing, the marketing manager ahs to develop a best marketing mi" for his product RE+IE& 7UESTIONS8 < = > :hat is market segmentationM :hat are its basesM :hat are the benefits of market segmentationM #efine marketing mi" Briefly e"plain different elements of marketing mi"

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LESSON 6 4 MARKETING EN+IRONMENT Learning Obje !i"e# After reading this lesson, you should be able to understand 'he various micro environmental factors that affect the marketing system. 'he various macro environmental forces that affect the system. and 'he strategies to be adopted by the marketing e"ecutives on the face of challenges posed by these environmental forces )ne of the ma*or responsibilities of marketing e"ecutives is to monitor and search the environment 0hich is constantly spinning out ne0 opportunities 'he marketing environment also spins out ne0 threats such as financial, economic political and energy crisis and firms find their markets collapsing (ecent times have been marked by sudden changes in the marketing environment, leading #rucker to dub it an 3Age of #iscontinuity and 'offler to describe it as a time of 3Feature Shock& Company marketers need to constantly monitor the changing environment more closely so that they 0ill be able to alter their marketing strategies to meet ne0 challenges and opportunities in the environment 'he marketing environment comprises the 3non controllable& actors and forces in response to 0hich organiEations design their marketing strategies Specifically, 3A company&s marketing environment consists of the actors and forces

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e"ternal to the marketing management function of the firm that impinge on the marketing management&s ability to develop and maintain successful transactions 0ith its target customers& 'he company&s marketing environment consists of micro environment and macro environment 'he micro environment consists of the actors in the company&s immediate environment that affects its ability to serve the markets: the company, suppliers, market intermediaries, customers, competitors and publics 'he macro environment consists of the larger societal forces that affect all of the actors in the company&s micro environment the demographic, economic, physical, technological, political, legal and socio,cultural forces

ACTORS IN T9E COMPAN:=S MICRO EN+IRONMENT !very company&s primary goal is to serve and satisfy a specified set of needs of a chosen target market 'o carry out this task, the company links itself 0ith a set of suppliers and a set of marketing intermediaries to reach its target customers 'he suppliers company marketing intermediaries customers chain comprises the core marketing system of the company 'he company&s success 0ill be affected by t0o additional groups namely, a set of competitors and a set of publics Company management has to 0atch and plan for all these factors SUPPLIERS Suppliers are business firms 0ho provide the needed resource to the company and its competitors to produce the particular goods and services For e"ample Bakery #esotta must obtain sugar, 0heat, cellophane paper and other materials to produce and package

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its breads +abour, e8uipment, fuel electreicity and other factors of production are also to be obtained 6o0 the company must decide 0hether to purchase or make its o0n :hen the company decides to buy some of the inputs, it must make certain specification call for tender etc and then it segregates the list of suppliers Jsually company choose the suppliers 0ho offer the best mi" of 8uality, delivery schedule credit, guarantee and lo0 cost Any sudden change in the 3suppliers& environment 0ill have a substance impact on the company&s marketing operations Sometimes some of the inputs to the company might cost more and hence managers have continuously monitored the fluctuations in the suppliers side Marketing manager is e8ually concerned 0ith supply availability Sudden supply shortage labour strikes and other events can interfere 0ith the fulfillment of delivery promise customers and lose sales in the short run and damage customer good0ill in long run 9ence many companies prefer to buy from multiple sources to avoid overdependence on any one supplier Some times even for the appendage services to marketing like marketing research, advertising, sales training etc the company use service from outside 'his dependency may also create some bottlenecks, at times, due to the behaviour of these agencies and conse8uently affect the marketing operations of the company COMPAN: Marketing management at any organisation, 0hile formulating marketing plans have to take into consideration other groups in the company, such as top management, finance, (N#, purchasing, manufacturing and accounting Finance department has to be consulted for the funds available for carrying out the marketing plan apart from others (N# has to be continuously doing ne0 product development Manufacturing has to be coordinated based on the market demand and supply of the products According has to measure revenues and costs to help marketing in achieving its ob*ectives Jsually

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marketing department has to face the bottlenecks put up by the sister departments 0hile designing and implementing their marketing plans

MARKETING INTERME$IARIES Channel members are the vanguard of the marketing implementation part 'hey are the people 0ho connect the company 0ith the customers 'here are number of middle men 0ho operate in this cycle Agent middle men like brokers and agents find customers and establish contacts, merchant middlemen are the 0holesalers, retailers, 0ho take title to and resell the merchandise Apart from these channel members, there are physical distribution firms 0ho assist in stocking and moving goods from the original locations to their destinations :arehouse firms store and protect goods before they move to the ne"t destinations 'here are number of transporting firms consists of rail, road, truckers, ship, airline etc that mover goods from one location to another !very company has to decide on the most cost effective means of transport considering the costs, delivery, safety and speed 'here are financial intermediaries like banks, insurance companies, 0ho support the company by providing finance insurance cover etc 'he behaviour and performance of all these intermediaries 0ill affect the marketing operations of the company and the marketing e"ecutives have to prudently deal 0ith them

COMPETITORS $f one company plans a marketing strategy at one side, there are number of other companies in the same industry doing such other calculations Coke has competitors in %epsi Maruti has competitions from 'ata $ndica, Santro etc 6ot only that the

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competition comes from the branded segment but also from the generic market, 0here there are only fe0 branded products of rice but there are numerous generic variety of rice according to the local tastes in each region the country Sometimes competition comes from different forms Airlines have to overcome competitions not only from the other Airlines but also from (ail0ays and Ships Basically every company has to identify the competitor, monitor their activities and capture their moves and maintain customer loyalty 9ence every company comes out 0ith their o0n marketing strategies PU5LICS A public can facilitate or seriously affect the functioning of the company, %hilip ;otler defines public as any group that has an actual or potential interest or impact on a company&s ability to achieve its ob*ectives ;otler notes that there are different types of publics, -overnment publics, citiEen action publics, local publics, general public and internal publics Since, the success of the company 0ill be affected by ho0 various publics vie0 their activity, the companies have to monitor these publics, anticipate their moves dealing 0ith them in constructive 0ays

CUSTOMERS Customers are the fulcrum around 0hom the marketing activities of the organisation revolve 'he marketer has to face the follo0ing types of customers Customer Markets: Markets for personal consumption Industrial Markets: -oods and services that could become the part of a product in those industry Institutional uyers: $nstitutions like schools, hospital, 0hich buy in bulk

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!eseller Markets: 'he organiEations buy goods for reselling their products "overnment Markets: 'hey purchase the products to provide public services International Markets: Consists of Foreign buyers and -overnments

MACRO EN+IRONMENT Macro environment consists of si" ma*or forces viE, demographic, economic, physical, technological, political# legal and socio$cultural. 'he trends in each macro environment components and their implications on marketing are discussed belo0:

$EMOGRAP9IC EN+IRONMENT #emography is the study of human population in terms of siEe, density, location, age, gender, occupation etc 'he demographic environment is of ma*or interest to marketers because it involves people the people make up markets 'he 0orld population and the $ndian population in particular is gro0ing at an e"plosive rate 'his has ma*or implications for business A gro0ing population means gro0ing human needs #epending on purchasing po0ers, it may also mean gro0ing market opportunities )n the other hand, decline in population is a threat so some industrial and the boon to others 'he marketing e"ecutives of toy,making industry spend a lot of energy and efforts and developed fashionable toys, and even advertise /Babies are our business,our only business1, but 8uietly dropped this slogan 0hen children population gone do0n due to declining birth rate and later shifted their business to life insurance for old people and changed their advertisement slogan as /the company has not babies the over @Gs1

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'he increased divorce rate shall also have the impact on marketing decisions 'he higher divorce rate results in additional housing units, furniture, appliances and other house,hold appliances Similarly, 0hen spouses 0ork at t0o different places, that also results in additional re8uirement for housing, furniture, better clothing, and so on 'hus, marketers keep close tract of demographic trends developments in their markets and accordingly evolve a suitable marketing programme ECONOMIC EN+IRONMENT Markets re8uire purchasing po0er as 0ell as people 'otal purchasing po0er is functions of current income, prices, savings and credit availability Marketers should be a0are of four main trends in the economic environment AiB $e rea#e in Rea, In (;e Gr(4!/ Although money incomer per capita keeps raising, real income per capita has decreased due to higher inflation rate e"ceeding the money income gro0th rate, unemployment rate and increase in the ta" burden 'hese developments had reduced disposable personal income. 0hich is the amount people have left after ta"es Further, many people have found their discretionary income reduced after meeting the e"penditure for necessaries Availability of discretionary income shall have the impact on purchasing behaviour of the people

AiiB

C(n!in*e) In-,a!i(nar2 Pre##*re 'he continued inflationary pressure brought about a substantial increase in the prices of several commodities $nflation leads consumers to research for

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opportunities to save money, including buying cheaper brands, economy siEes, etc

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L(4 Sa"ing# an) 9ig/ $eb! Consumer e"penditures are also affected by consumers savings and debt patterns 'he level of savings and borro0ings among consumers affect the marketing :hen marketers make available high consumer credit, it increases market opportunities

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C/anging C(n#*;er E.3en)i!*re Pa!!ern# Consumption e"penditure patters in ma*or goods and services categories have been changing over the years For instance, 0hen family income rises, the percentage spent on food declines, the percentage spent on housing and house hold operations remain constant, and the percentage spent on other categories such as transportation and education increase 'hese changing consumer e"penditure patterns has an impact on marketing and the marketing e"ecutives need to kno0 such changes in economic environment for their marketing decisions

P9:SICAL EN+IRONMENT 'here are certain finite rene0able resources such as 0ood and other forest materials 0hich are no0 dearth in certain parts of 0orld Similarly there are finite non, rene0able resources like oil coal and various minerals, 0hich are also not short in supply

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$n such cases, the marketers have to find out some alternative resources For instance, the marketers of 0ooden chairs, due to shortage and high cost of 0ood shifted to steel and later on fiber chairs Similarly scientists all over the 0orld are constantly trying to find out alternative sources of energy for oil due to dearth in supply 'here has been increase in the pollution levels in the country due to certain chemicals $n Mumbai,Surat,Ahemedabed area, are facing increased pollution due to the presence of different industries Marketers should be a0are of the threats and opportunities associated 0ith the physical environment and have to find our alternative sources of physical resources SOCIO CULTURAL EN+IRONMENT 'he socio,cultural environment comprises of the basic beliefs, values and norms 0hich shapes the people Some of the main cultural characteristics and trends 0hich are of interest to the marketers are: AiB C(re C*,!*ra, +a,*e# %eople in a given society hold many core beliefs and values, that 0ill tend to persist %eople&s secondary beliefs and values are more open to change Marketers have more chances of changing secondary values but little chance of changing core values

AiiB

Ea / C*,!*re C(n#i#!# (- S*b-C*,!*re# !ach society contains sub,cultures, i e groups of people 0ith shared value systems emerging out of their common life e"periences, beliefs, preferences and behaviors 'o the e"tent that sub,cultural groups e"hibit different 0ants and

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consumption behaviour, marketers can choose sub,cultures as their target markets Secondary cultural values undergo changes over time For e"ample 3video, games&, 3playboy magaEines& and other cultural phenomena have a ma*or impact on children hobbies, clothing and life goals Marketers have a keen interest in anticipating cultural shifts in order to identify ne0 marketing opportunities and threats

TEC9NOLOGICAL EN+IRONMENT 'echnology advancement has benefited the society and also caused damages )pen heart surgery, satellites all 0ere marvels of technology, but hydrogen bomb 0as on the bitter side of technology 'echnology is accelerating at a pace the many products seen yester,years have become obsolete no0 Alvin 'offler in his book 3'he Future Shock& has made a remark on the accelerative thrust in the invention, e"ploitation and diffusion of ne0 technologies 'here could be a ne0 range of products and systems due to the innovations in technology 'his technology developments has tremendous impact on marketing and unless the marketing manager cope up 0ith this development be cannot survive in competitive market the

POLITICAL AN$ LEGAL EN+IRONMENT Marketing decisions are highly affected by changes in the politicalF legal environment 'he environment is made up of la0s and government agencies that influence and constraint various organiEations and individuals in society

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+egislations affecting business has steadily increased over the years 'he product the consumes and the society against unethical business behaviour and regulates the functioning of the business organiEations (emoval of restrictions to the e"isting capabilities, enlargement of the spheres open to M('% and F!MA companies and broad banding of industrial licenses 0ere some of the schemes evolved by the government 'he legal enactments and rules and regulations e"ercise a specific impact on the marketing practices, systems and institutions in the country Some of the acts 0hich have direct bearing on the marketing of the company include, the %revention of Food Adulteration Act 4<D@?5, 'he #rugs and Cosmetics Act 4<D?G5, 'he Standard :eights and Measures Act 4<D@A5 etc 'he %ackaged Commodities 4(egulative5 )rder 4<DB@5 provides for clearly making the prices on all packaged goods sold in retail e"cluding certain items Similarly, 0hen the government changes, the policy relating to commerce, trade, economy and finance also changes resulting in changes in business 7ery often it becomes a political decisions For instance, one -overnment introduce prohibition, and another government lifts the prohibition Also, one -overnment adopts restrictive policy and another -overnment adopts liberal economic policies All these 0ill have impact on business 9ence, the marketing e"ecutives needs a good 0orking kno0ledge of the ma*or la0s affecting business and have to adapt themselves to changing legal and political decisions All the above micro environmental actors and macro environmental forces affect the marketing systems individually and collectively 'he marketing e"ecutives need to understand the opportunities and threats caused by these forces and accordingly they must be able to evolve appropriate marketing strategies

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RE+IE& 7UESTIONS8 < !"plain the impact of micro environmental actors on marketing management of a firm = #iscuss ho0 the macro environment forces affect the opportunities of a firm

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LESSON 6 5 CONSUMERS PURC9ASE PROCESS


Learning Obje !i"e# After reading this lesson, you should be able to understand, 'he different stages involved in purchased process. 'he suitable strategy to be evolved by the market at each stage of purchase process

$n order to understand consumer behaviour, it is essential to understand the buying process 6umerous models of consumer behaviour depicting the buying process 0ere develop over the years Among all these models the one given by 9o0ard and Sheth is the most comprehensive and largely approved model 9o0ever, as the 9o0ard, Sheth model is a very sophisticated model based on it a simplified is given belo0: A simple model of consumer decision,making given the figure reflects the notion of the cognate or problem,solving consumer 'his model has three components: $nput, %rocess and )utput In3*!8 'he input component of consumer decision,making model comprises of marketing,mi" activities and socio,cultural influences

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Pr( e## 'he process component of model is concerned 0ith 3ho0& consumer make decisions 'his involves understanding of the influences of psychological factors on consumer behaviors 'he process component of a consumer decision,making model consists of three stages: 6eed recognition, information search and evaluation of alternatives
A Model of Consumer Decision-Making Input External Influences Process Consumer Decision-making Output Post-decision Be a!iour

O*!3*!8 'he output component of the consumer decision,making model concerns t0o more stages of purchase process activity: %urchase behaviour and post,purchase behaviour

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'he buying process thus, is composed of a number of stages and is influenced by a individual&s psychological frame0ork composed of the individual&s personality, motivations, perceptions and attitudes 'he various stages of the buying process are: < = > ? @ 6eed (ecognition $nformation Search !valuation of Alternatives %urchase Behaviour %ost,%urchaser !valuation

1' Nee) Re (gni!i(n 'he recognition of need its likely to occur 0hen a consumer is faced 0ith a problem, and if the problem is not solved or need satisfied, the consumer builds up tension !"ample: A need for a cooking gas for busy house 0ife 'he needs can be triggered by internal 4hunger, thirst, se"5 and e"ternal stimuli 4neighbor&s ne0 Car or '75 'he marketers need is to identify the circumstance that trigger the particular need or interest in consumers 'he marketers should reach consumers to find out 0hat kinds of felt needs or problem arose, 0hat brought them about ho0 they led to this particular product 2' In-(r;a!i(n Sear / 'he consumer 0ill search for re8uired information about the product to make a right choice 9o0 much search he undertakes depends upon the strength of his drive, the amount of information he initially has, the ease of obtaining additional information, the value he places on additional information and the satisfaction he gets from search

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'he follo0ing are the sources of consumer information: %ersonal Sources : Commercial Sources: %ublic Sources : Family, friends, neighbours, past e"perience Advertising, sales people, dealers, displays Mass media, consumer 0elfare organisation

'he practical implication is that a company design its marketing mi" to get its brand into the prospect&s a0areness set, consideration set and choice set $f the brand fails to get into these sets, the company losses its opportunity to sell to the consumer As for the sources of the information used by the consumer, the marketer should identify them carefully and evaluate their respective importance as source information 3' E"a,*a!i(n (- A,!erna!i"e# :hen evaluating potential alternatives, consumers tend to use t0o types of information 4i5 a list of brands from 0hich they plan to make their selection 4the evoke set5 and 4ii5 the criteria they 0ill use to evaluate each brand 'he evoke set is generally only a part a sub*ect of all the brands of 0hich the consumer is a0ares 'he criteria used by the consumers in evaluating the brands are usually e"pressed in terms of product attributes that are important to them 'he attributes of interest to buyers in some familiar products are: '0o,0heeler Computers : : Fuel economy, pulling capacity, price Memory capacity, graphic capability, soft0are availability of

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Mouth0ash

Colour, effectiveness, germ,killing, capacity, price, tasteFflavour

Consumers 0ill pay the most attention to those attributes that are concerned 0ith their needs

4' P*r /a#e 5e/a"i(*r Consumers make t0o types of purchases trial purchases and repeat purchases $f he product is found satisfactory during trial, consumers are likely to repeat the purchase (epeat purchase behaviour is closely related to the concept of brand loyalty For certain products such as 0ashing machine or refrigerator, trial is not feasible and the consumer usually moves directly from evaluation to actual purchase A consumer 0ho decides to purchase 0ill make brand decision, 8uantity decision, dealer decision, timing decision and payment method decision

5' P(#!-P*r /a#e E"a,*a!i(n 'he consumer&s satisfaction or dissatisfaction 0ith the product 0ill influence subse8uent behaviour 'here are three possible outcomes of post,purchase evaluations by consumers in light of their e"perience 0ith the product trial purchase that the actual performance matches the standard leading to neutral feeling. that the performance e"ceeds the standards leading to positive

disconfirmation, i e satisfaction. and

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that the performance is belo0 the standard, causing negative disconfirmation, i e dissatisfaction $f the product lives up to e"pectations of the consumers, they 0ill probably buy it again $f the products performance is disappointing, the 0ill search for more suitable alternative brand :hether satisfied or dissatisfied 0ith the product, the consumer 0ill pass on their opinion on others 'he marketers can send a letter congratualating the consumers for having selected a fine product 'hey can place advertisements sho0ing satisfied o0ners 'hey can solicit customers suggestions for improvements At last, the marketers can also help the consumers to dispose of the used brand, for e"ample, by Buy, back,method %n illustration: 'o illustrate the consumer&s purchase decision process, consider the stages of a ne0 car purchase 'he decision process begins 0hen the consumer e"periences a need or desire for ne0 car 'his problem recognition phase may be initiated for any one of several reasons because recent repair bills have been high, because the present car needs a ne0 set of tires, because the present car has been in an accident, or because the neighbor has *ust brought a ne0 car :hatever the stimulus, the individual perceives a differences or conflict, bet0een the ideal and the actual sale of affairs :hen he decided to go in for a ne0 car, he starts searching for information 'he consumer may collect information through various sources such as, automobile magaEine, fiends, family members, automobile companies, automobile advertisements and so on After collecting the information about different automobiles, he evaluates the alternative brands and models of cars At this point, the consumer must decide on the criteria that

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0ill govern the selection of the car 'hese criteria may include price, kilometer per liter, options available, availability of service net0ork, and finally, option of family and friends #uring the purchase decision stage, the consumer actually makes the purchase decision 0hether to buy or not to buy $f the consumer decides to buy the car, then additional decisions must be made regarding types or model of car, 0hen the form 0hom the car should be purchased and ho0 the car could be paid for 9opefully the outcome is positive and the consumer feels that the right decisions have been made #uring the post,purchase stage, a satisfied customer is more likely to take about the *oys of a ne0 car purchase )n the other hand, problems may develop or the consumer may begin to feel a 0rong decision has been made A dissatisfied consumer 0ill probably attempt to dissuade friends and associates from buying a ne0 car, or at least 0ill caution them against making the same mistake

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P*r /a#e $e i#i(n Pr( e## A !i"i!ie# (- Car


%roblem (ecognition Stage $nformation Stage Search $nformation Collection about the Cars 6eed for a 6e0 Car 2es 6o Automobile magaEines Automobile companies %romotion literature and advertisements friends and family %rice Colour and appearance ;ilometers per litre !"pert opinion Buy #o not buy !conomy #elu"e version +u"ury versions 6o0 +ater Model A Model B Model C #ealer A #ealer B )0n funds +oan able funds

Alternative !valuation Stage

Criteria for Selection

%urchase Stage

#ecision

%urchase #ecision

:hat 'ype of Car

'iming of %urchase

:hich Car

)ther #ecisions

:here to %urchase 9o0 to Finance Satisfied dissatisfied

#egree of Satisfaction

RE+IE& 7UESTIONS8 < !"plain the various steps involved in purchase process

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9o0 does an understanding of purchase process help the marketer to formulate marketing strategyM

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LESSON 6 6 CONSUMER 5E9A+IOURS

Learning Obje !i"e# After reading this lesson, you should be able to understand 'he factors influencing consumer behaviour. 'heir implications on marketing decisions,making

CONSUMER 5E9A+IOUR Jnder the modern marketing 3Consumer& is the fulcrum. he is the life blood. he is very purpose of the business and hence the business firms have to listen consumer voices, OO Jnderstand his concerns 9is needs have to be focused and his respect has to be earned 9e has to be closely follo0ed 0hat he 0antsOO 0hen, 0here and ho0 'he ne0 business philosophy is that the economic and social *ustification of firm&s e"istence lies in satisfaction of consumer 0ants Charles - Mortimer has rightly pointed our that, 3instead of trying 0hat is easiest for us to make, 0e must find our much more about 0hat the consumer is 0illing to buyOO 0e must apply our creativeness more intelligently to people and their 0ants and needs rather than to products1 'o achieve consumer satisfactions, the marketer should kno0, understand consumer behaviour their characteristics, needs, attitudes and so on But, the study of consumers behaviour is not an easy task as to involves comple" system of interaction of various factors namely sociological, cultural, economical and psychological

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1ACTORS IN1LUENCING CONSUMER 5E9A+IOUR Consumers are stimulated by t0o types of stimuli internal and environmental 'he internal influences comprise of motivation, perception, learning and attitudes all concepts dra0n from the field of psychology 'he environmental influences include cultural, social and economical !"perts in these areas attempts to e"plain 0hy people behave as they do as buyers All these influences interact in highly comple" 0ays, affecting the individual&s total patterns of behaviour as 0ell as his buying behaviour

C*,!*ra, 1a !(r# Culture is the most fundamental determinant of a person&s 0ants and behaviour $t encompasses set of values, ideas, customs, traditions and any other capabilities and habits ac8uired by an individual as a member of the society !ach culture contains smaller groups of subcultures such as national culture, religious culture and social class culture that provides more specific identification and socialiEation for its members A subculture is a distinct cultural group e"isting as an identifiable segment 0ithin a larger culture 'he members of a subculture tend to adhere too many of the cultural mores of the overall society, yet they also profess beliefs, values and customers 0hich set them apart An understanding of subculture is important to marketing managers because the members of each subculture tend to sho0 different purchase behaviour patterns 'hus, the Papanese culture provides for certain manners of dressing 0hile the $ndian culture provides for different patterns $n the same 0ay one&s religious affiliation may influence one&s market behaviour

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'he religious groups such as 9indus, Christians and Muslims posses distinct cultural preferences For instance, 9indus consider 0hite and black colours inauspicious for brides during marriage. 0hereas for Christians 0hite is a auspicious bridal dress and black is auspicious for Muslims Social class may be brought of as a rather permanent and homogenous group of individuals 0ho have similar behaviour, interests and life,styles Since people normally choose their friends and associate on the basis of commonality of interests, social classes have a tendency to restrict interactions, especially 0ith regard to social functions $n addition, social classes are hierarchical in nature. thus people usually position their social functions $n addition, social classes are hierarchical in nature. thus people usually position their social group either above or belo0 other groups Jsually social classes are divided into si" upper, lo0er,upper, upper,middle, lo0er,middle, upper,lo0er and lo0er,lo0er Several research studies have pointed out that differences in consumer behaviour are largely an function of social class 'he differences in behaviours can be traces in communication skills, shopping behaviours, leisure activities, saving and spending habits !ach culture evolves uni8ue pattern of social conduct 'he prudent marketer has to analyEe these patterns to understand their behaviour to evolve a suitable marketing programme

S( i(,(gi a, 1a !(r# 'he sociological factors are another group of factors that affect the behaviour of the buyers 'hese include reference groups, family and the role and status of the buyers

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'he reference group are those groups that have a direct or indirect influence on the person&s attitudes, opinions and values 'hese groups include peer group, friends and opinion leaders For instance, an individual&s buying behaviour for a foot0ear could be influenced by his friend, colleague or neighbours Similarly, Cine stars and Sports heroes are also acting as reference groups to influence buyers :hile Cine stars are used to advertise toilet soaps, soft drinks etc , Sports heroes are focused to recommended the products of t0o 0heelers and four 0heelers to influence consumers Also the physicians are used as referees for influencing the consumers of toothpaste

A more direct influence on buying behaviour is one&s family members namely, spouse and children 'he person 0ill have certain position in his family, that is called a status and has a duty assigned that is role and this status and role also determine buying behaviour For instance, 0hile buying ' 7 , clothing and other house,hold appliances, family members have a tremendous role in influencing the buyer behaviour For e"ample, 0hile buying clothing materials, children may influence parents and parents may influence children 'he marketers, therefore, aim their marketing efforts to reach reference groups and through them reach the potential buyers 'he marketer needs to determine 0hich member of a family has the greater influence on the purchase of a particular product and should try to reach to the customer to market his product

Per#(na, C/ara !eri#!i # An individual&s buying is also influenced by his personal characteristics such as his age and life cycle stage, occupation, invome and personality For e"ample, if the target market is kids, their food and other re8uirements 0ill certainly be different from

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aged people Similarly, behaviour and need differs depending on the nature of occupation of the buyers For e"ample, factory 0orkers and other defence people re8uire foot0ear of mainly durable type that could 0ithstand serve strain, 0hereas people 0ith 0hite color *obs re8uire foot0ear of light and fashionable type 9ence, marketers should by to identify the occupational groups that have interest in their products and services An organisatoin can even specialiEe in manufacturing products needed by a particular occupational group Basically it is the level of income, its distribution and the conse8uent purchasing po0er that determines one&s buying behaviour )ut of the one&s total income, a part may be saved and the remaining part is available for spending Again out of this, a siEable part has to be reserved for meeting essential e"penses and it is only the balance the individual has the discretion to spend An intelligent marketer has to 0atch the income saving trend of his consumer and basing on that evolve a marketing programme !ach person has a distinct personality that 0ill influence his buying behaviour A person&s personality is usually described in terms of such traits as self,confidence, dominance, autonomy and adaptability %ersonality can be a useful variable in analyEing consumer behaviour P#2 /(,(gi a, 1a !(r# %sychological characteristics play the largest and most enduring rile in influencing the buyer behaviour A person&s buying choices re influenced by four ma*or psychological processes motivation, perception, learning and attitudes Motivation is the 30hy& of behaviour According to one 0riter, /motivations refers to the drives, urges, 0ishes or desire 0hich initiate the se8uence of the events kno0s as behaviour1 Motivation may be conscious or subconscious a force that underlines a behaviour $t is the comple" net0ork of psychological and physiological

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mechanism Motives can be instinctive or learned. conscious or unconscious, rational or irrational 'he most popular human motivation theories are profounded by Maslo0&s, Freuds and 9erEberg Maslow has classified human needs into five types in the order of importance basic, safety, social, esteem and self actualiEation needs 'he most urgent motive is acted upon first $f this is fulfilled, the individual proceeds to fulfill the ne"t higher need $t is important for the marketer to understand the motives that lead consumers to make purchases and he must be able to e"plain the prospective buyers ho0 best his product can satisfy a particular need But he must be sure that the target consumers have already fulfilled the previous need &reuds 'heory deals 0ith sub,conscious factors 9e asserts that people are not leaky to be conscious of the real motive guiding their behaviour because these motives are often repressed from their o0n consciousness 'he most important implication of he Freudian model of marketing is that human beings the motivated by symbolic as 0ell as by economic and functional concerns At times, the marketing analyst must look beyond the apparent reason 0hy an individual purchased a product in order to find the real reason )nly through special methods of probing such as in,depth intervie0s, pro*ective techni8ues their motives can really be discovered and understood 'he marketer should be a0are of the role of visual and tactile elements in triggering deeper emotions that can stimulate or inhibit purchase &rederick (er)berg developed a t0o theory of motivation 0hich distinguishes bet0een dissatisfiers and satisfies 'he implication of this theory is that the marketers should do their best to prevent dissatifiers from affecting the buyers and then he should carefully identify the ma*or satisfiers or motivators of purchase %erception is the process by 0hich individuals become a0are of 4though any of the five senses5 and give meaning to their environment

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Several technical factors affect the 0ay an ob*ect is perceived 'hese factors do not refer to the product&s technology itself, but rather to ho0 the individual sees the ob*ects (esearch studies, for e"ample, have indicated that a large and multicoloured advertisement is perceived more 8uickly and remembered longer than a small black,and, 0hite advertisement A second important factor is the individual&s mental readiness to perceive a product (esearch has sho0n that buyers tend to become /fi"ed1 on a mental image For e"ample, a consumer may continue to purchase a particular brand even after the consumer kno0s that a better product can be bought at a lo0er price Mental readiness is also affected by the buyer&s level of attention -enerally speaking, people have a limited attention span 'hat is, human beings only comprehend a limited number of ob*ects or messages in a given amount of time Also, people&s attention tends to shift 8uickly form one ob*ect to another 'hese aspects of perception suggest the importance of keeping commercials simple and brief Social and cultural factors also shape perception As already mentioned, culture and social class have a significant effect on ho0 and 0hat consumers purchase As an illustration, consumers differ as to ho0 important /up0ard mobility1 is to them %ersons interested in climbing the social ladders 0ill perceive certain products as inferior if they feel the members of the upper class do not purchase those products %ast e"perience is a fourth factor influencing perception 'o illustrate, a person may perceive a brand of toothpaste of high 8uality simply because of past favourable e"perience 0ith the product Finally, the mood of the individual is an important determinant of perception. a person 0ho is unhappy or depressed may find it difficult to see the positive side of a product %erception has three basic characteristics: it is sub*ective, selective and summative $t is sub*ective because no t0o individuals perceive the same ob*ect in the

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same 0ay %eople tend to see 0hat they 0ant to seen and to hear 0hat they 0ant to hear %erception is selective in that only a fe0 of the signals that people receive each day are converted into messages :e receive bet0een <,@GG and =,GGG advertising signals per day through e"posure to billboards, store signs And other forms of mass media Since it is not possible to deal mentally 0ith so many messages, our minds eliminate most of them from conscious a0areness Because of selective perception, advertising managers must carefully choose their media and the timing and placement of advertise?ments in order to ma"imiEe e"posure $n addition, if the advertisement is cluttered 0ith many messages, prospective buyers 0ill probably not be able to remember any of them %erception is summative in the sense that the reception and recognition of a signal is fre8uently a function of the cumulative effect of multiple signals 'he more often a signal is received, the greater the chance that it 0ill be understood Also, t he probability that a receiver 0ill correctly interpret a signal is enhanced if the signal is sent through t0o or more channels 'hese t0o points suggest 0hy television advertisers repeat their commercials fre8uently Also the sales person 0ho 0ants to ensure that a message is understood may send the customer a direct,mail promotion and then visit the customer personally to demonstrate the product +earning is the changes that occur in an individual&s behaviour arising from e"perience +earning is produced through the interplay of drives, stimuli, cues, responses and reinforcement A drive is a strong internal stimulus impelling actions and its becomes a motive 0hen it&s directed to0ard a particular drive,reducing stimulus ob*ects Cues are minor stimuli the determine 0hen, 0here and ho0 the person responds Advertisements fre8uently serve as cues $f a person is thirty 4drive5, a soft drink advertisement may encourage the vie0er to reduce the dive by taking a soft drink either from the fridge, or visiting nearby cool,drink bar 'hese cues can influence response, and if the response if

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positive, the consumer learns about the product and buys it, 0hich means his response is reinforced +earning is best studied from the perspective of stimulus,response theory and cognitive theory *timulus$!esponse 'heory: Stimulus response theory had its beginning 0ith the (ussian psychologist %avlov $n his famous e"periment, %avlov range a bell immediately before feeding a dog !ventually, the dog, associating the sound of the bell 0ith the arrival of dinner, learned to salivate 0hen the bell 0as rung regardless of 0hether food 0as supplied As result, %avlov concluded that learning 0as largely an associative process 'he stimulus,response model has t0o important implications for marketing First, 0hen a ne0 product is introduced, the firm should realiEe that if may have to e"tinguish brand habits and preferences before attempting to form ne0 buying habits $n this light, the firm 0ill 0ish to seriously consider the strength of its cues 'he second implications for marketing is that because people are conditioned through repetition and reinforcement, a single cue, such as a television advertisement, may not be sufficient to penetrate an individual&s consciousness 'herefore, it is often necessary to repeat at advertisement a number of times Cognitive Theory: Cognitive theorists believe that habits are ac8uired by insight, thinking and problem solving as 0ell as through a stimulus,response mechanism From this perspective, the central nervous system and the brain become very important intermediatries in the learning process Cognitive theory has several implications for marketing For e"ample, 0hen the firm is designing a sales strategy, it cannot assume that the consumer is going to buy the product simply because of previous satisfaction 0ith the firm $f the consumer has had

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successful transactions in the past 'his 0ill help the seller, but the buyer can also be e"pected to evaluate the firm&s product 0ith respect to its merits as 0ell as compare it to competitor&s offerings 'herefore, in situations 0here cognitive learning is likely to take place, the seller must develop logical presentations 0hich help the potential buyer to evaluate the product in a favourable light 'he practical importance of learning theory for marketers is that they can build up demand for a product by associating it 0ith strong, drives, using motivating cues and providing positive reinforcement A brie- is a descriptive thought that a person hgksd* f*ghdkf something 'hese beliefs may be based on kno0ledge, fgh* fghddgd dfgdfgdf dgdfgd very much interested in the beliefs of people about their frgdgdf fgd service because they influence their buying behaviour $ some of the fgdfgdf are 0rong and inhibit purchase, the marketer should launch a campaign to correct these beliefs An a!!i!*)e describes a person&s enduring favourable or unfavorable cognitive evaluations, emotional feelings and actions tendencies to0ard some ob*ect or idea Attitudes put them into a frame of mind of liking and disliking an ob*ect, moving to0ard or a0ay from it 'his leads people to behave in fairly consistent 0ay to0ards similar ob*ects 9ence, the marketer should try to fir his product into e"isting attitudes rather than to try to change people attitudes From the above discussions, it becomes obvious that consumer behaviour is influenced by economic, sociological and psychological factors But it is 0rong to assume that consumer behaviour is influenced by any 3one& of these factors 'he fact is that at a point of time and in a given set of situations, it is influenced by a sum total of these diverse yet interrelated factors :hen a consumer is in the process of taking a purchase decision, all these factors are prove to 0ork simultaneously and influence his choice But it is possible that the relative importance of these factors vary in a given

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situation $t is the intelligence of the marketer to find out the nature and intensity of the influence e"erted by these factors and to formulate appropriate marketing programme

RE+IE& 7UESTIONS8 < = Bring out the important of studying consumer behaviour #iscuss the influence of socio,cultural factors in determining consumer behaviour > :hat are the psychological factors that influence buyers behaviourM

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LESSON > MARKETING IN1ORMATION S:STEM AN$ MARKETING RESEARC9

Learning Obje !i"e# After reading this lesson, you should be able to understand 'he meaning and the need for marketing information system. 'he components of the marketing information system. 'he meaning and importance of marketing research. 'he scope of marketing research. 'he procedure of doing marketing research

'o carry out marketing analysis, planning, implementation and control, the marketing manager needs to monitor and analyEe the behaviour of customers, competitors, dealers and their o0n sales and cost data $n order to pursue market opportunities as 0ell as anticipate marketing problems, they need to collect comprehensive and reliable information Marion 9arper put it this 0ay: /'o manage a business 0ell is to manage its future. and to manage the future is to manage information Many companies are studying the information needs of their e"ecutives and

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design their Marketing $nformation System 4M;$S5 to meet those needs Marketing $nformation Systems is defined as follo0s: /A marketing information system is a continuing and interacting structure of people, e8uipment and procedures to gather, sort, analyEe, evaluate, and distribute pertinent, timely and accurate information for use by marketing decision makers to improve their marketing planning, implementation and control

ASSESSING IN1ORMATION NEE$S 'he company begins to find out 0hat informant the mangers 0ould like to have But managers do not al0ays need all the information they ask for and they may not ask for all they really need $E+ELOPING IN1ORMATION 'he information needed by marketing managers can be obtained from internal company records, marketing intelligence and marketing research 'he information

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analysis system processes this information to make it more useful to managers INTERNAL RECOR$S S:STEM Most marketing managers use internal records and reports regularly especially for making day,to,day planning, implementation and control decisions $nternal records information consists of information gathered from sources 0ithin the company to evaluate marketing performance and to detect marketing problems and opportunities MARKETING INTELLIGENCE Marketing intelligence is every day information about developments in the marketing environment 'he marketing intelligence system determines 0hat intelligence is needed, collects it by searching the environment and delivers it to marketing managers 0ho need it Marketing intelligence can be gathered from company e"ecutives, dealers, sales force, competitors, the accounts and annual reports of other organiEations etc that helps managers prepare and ad*ust marketing plans MARKETING RESEARC9 Marketing (esearch is used to identify and define marketing opportunities and problems: to generate, refine and evaluate marketing actions. to monitor marketing performance and to improve understanding of the marketing process

IN1ORMATION ANAL:SIS $nformation gathered by the company&s marketing intelligence and marketing research systems re8uire detailed analysis 'his include use of advanced statistical analysis $nformation analysis might also involve a collection of mathematical models

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that 0ill help marketers make better decisions !ach model represents some real system, process, or outcome 'hese models can help ans0er the 8uestions of 0hat, if and 0hich is best

$ISTRI5UTING IN1ORMATION 'he information gathered through marketing intelligence and marketing research must be distributed to the marketing managers at the right time Most companies have centraliEed marketing information systems that provide managers 0ith regular performance reports, intelligence updates, and reports of research studies Mangers need these routine reports for making regular planning, implementation, and control decisions #evelopments in information technology have caused a revolution in information distribution :ith recent advances in computers, soft0are and telecommunication, most companies are decentraliEing their marketing information systems $n many companies marketing managers have direct access to the information net0ork through personal computers and other means From any location, they can obtain information from internal records or outside information services, analyEe the information using statistical packages and models, prepare reports on a 0ork processor or desk,top publishing system, and communicate 0ith orders in the net0ork through electronic communications Such systems offers e"citing prospects 'hey allo0 the managers to get the information they needed directly and 8uickly and to tailor it to their o0n needs

MARKETING RESEARC9 Marketing basically consists of identifying the consumers and satisfying them in the best possible 0ay Marketing research plays a key role in this process Marketing

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research helps the firm to ac8uire a better understanding of the consumer, the competition and the marketing environment $t also helps the formulation of right marketing mi", 0hich include decisions on product, price, place and promotion 'he conduct of marketing research has become so comple" due to increasing comple"ity of marketing and hence re8uires specialiEed skills and sophisticated techni8ues Marketing research has been variously defined by marketing researches (ichard Crisp defined marketing research /as the systematic, ob*ective and e"haustive search for and study of the facts relating to any probkem in the field of marketing1 According to -reen and 'ull, marketing research is /the systematic and ob*ective search for and analysis of information relevant to the identification and solution of any problem in the field of marketing& America Marketing Association defined marketing research, /as the systematic gathering, recording and analyEing of data about problems relating to the marketing of goods and services An analysis of above definitions clearly highlights the salient features of marketing research: $t is a search for data 0hich are relevant to marketing problems. $t is carried out in a systematic and ob*ectives manner. $t involves a process of gathering, recording and analysis of data

6one of the definitions is e"plicit about the managerial purposes of marketing

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research, e"cept saying that data are re8uired for solving marketing problem A better definition of marketing research is, that it is an ob*ective, and systematic collections, recording and analysis of data, relevant to marketing problems of a business in order to develop an appropriate information base for decision making in the marketing area

MARKET RESEARC9 Market research is different from marking research Market research is a systematic study of 3facts about market only 0ho, 0hat, 0here, 0hen, 0hy, and ho0 of actual and potential buyers )n the other hand the scope of marketing research is to 0ide that it includes all functional areas of marketing including market

IMPORTANCE O1 MARKETING RESEARC9 'he emergence of buyer&s market re8uires continuous need of marketing research to identify consumer& need and ensure their satisfaction 'he ever e"panding markets re8uire large number of middlemen and intensive distribution Marketing research should help identify and solve the problems of middlemen and distribution 'here is al0ays a change in the market conditions and the re8uirements of consumers Marketing research enables to anticipate and meet any such changes Marketing research can help bring about prompt ad*ustments in product design

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and packaging $t can help find out effectiveness of pricing $t can help find out the effectiveness of sales promotion and advertisement $t can help identify the strength and 0eakness of sales force 'he impact of economic and ta"ation policies on marketing could also be kno0n through marketing research

$n short, marketing research enables the management to identify and solve any problem in the area of marketing and help better marketing decisions SCOPE O1 MARKETING RESEARC9 'he scope of marketing research stretches from the identification of consumer 0ants and needs to the evaluation of consumer satisfaction $t comprises of research relating to consumer, products, sales, distribution, advertising, follo0ing classification of marketing research activity Mar0e! Re#ear / 'he purpose of market research is to gather facts about markets and the forces operating therein 'he areas of market research broadly include: Study of the market siEeF potential Study of the market profile Market share analysis pricing and sales forecasting A clear vie0 of the scope of marketing research may be obtained by the

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Study of market segments Market trends Sales forecasting Study of seasonal trends C(n#*;er Re#ear / 'he aim of this research is to develop an understanding about present and potential consumers and the level of satisfaction e"pected and derived by them from company&s products 'he broad areas of consumer research are: Study of consumer profile Study of consumer brand preferences, tastes and reactions Study of consumer satisfactionF dissatisfaction, reasons, etc Study of shifts in consumption patterns

Pr()* ! Re#ear / (evie0ing product line, product 8uality, product features, product design etc Study on the actual uses of a given product Study on ne0 uses of an e"isting product 'esting of ne0 products Study of related products

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Study of packing, packaging design Study of brand nameF brand markF its impact

$i#!rib*!i(n Re#ear / 'he purpose of this research is to identify the appropriate distribution channels for intermediaries, storage, transport problems etc 'he board areas include: Assessing the general pattern of pricing follo0ed by the industry Measuring price elasticity of demand !valuating the pricing strategy of the firm A)"er!i#ing an) Pr(;(!i(n Re#ear / 'he purpose of this research is to develop most appropriate advertising and promotion schemes and evaluate their effectiveness 'he broad areas include: Advertising copy research Media research Assessing the effectiveness of advertising Assessing the efficacy of sales promotional measures Sa,e# Re#ear / 'he purpose is to find out the sales potential and appraise sales performance of company&s products 'he broad areas include:

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'esting ne0 sales techni8ues AnalyEing of salesmen&s training Measuring salesman&s effectiveness Study of sales compensation AnalyEing methods of setting sales 8uota and sales territories Re#ear / (n C(;3e!i!i(n 'he purpose of this research is to find out the intensity and effect of competition to the firm 'he broad areas include: Study of competitive structure of the industry and individual competitors Study of competitors marketing strategies 'he scope of marketing research described above is only indicative and not e"haustive Further, the above research areas are not 0atertight compartments 'hey are closely interrelated 'he actual scope depends on the needs of a company and the marketing situations 5ENE1ITS O1 MARKETING RESEARC9 $t is apparent that the scope of marketing research activity is very 0ide $t covers almost all aspects of marketing 'he ma*or contribution of marketing research is that it augments the effectiveness of marketing decisions Marketing research uncovers facts from both outside and 0ithin the company relevant to marketing decisions and provides a sustainable and logical base for making decisions 'he specific contributions of marketing research to the effectiveness of the

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marketing programme of a firm are as follo0s: < :ith the guidance of research, products should be better suited to the demand and prices reasonably = > Specific markets having the greatest sales potentialities could be identified (esearch can help to identify the best sales appeal of the products, the best 0ay of reaching the potential buyers and the most suitable timing of promotion etc ? (esearch can also help minimiEe marketing costs by making marketing efforts more efficient and effective @ (esearch can also find out the effectiveness of sales force management such as right selection procedure, effective training programmes, scientific compensation schemes and effective control mechanisms 'he contributions of marketing research are considerable $t facilitates both the decision,making and the operational tasks of marketing management effective and efficient and thereby contributes to consumers satisfaction and organiEation&s efficiency LIMITATIONS O1 MARKETING RESEARC9 'he marketing research is not 0ithout its share of limitations < Marketing (esearch cannot provide complete ans0er to the problems because there are many intervening variables 0hich are difficult to be controlled = Some marketing problems do not lend themselves to valid research conclusions due to limitations of tools and techni8ues involved 'here are many intangible and variables operating 0hich are difficult to be measured

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>

$n a fast changing environment, the data collected become obsolete soon and the research findings based on them 0ill become little use

$t only provides a base for predicting future events. it cannot guarantee 0ith any certainty their happening

Marketing research involves more time, effort and high cost But it is very often said that marketing research is cheaper than costly marketing mistakes

PROCE$URE IN CON$UCTING MARKETING RESEARC9 $n marketing research, the follo0ing procedure is generally adopted < = > ? @ A #efining the problem and its ob*ectives #etermine the information needed and the sources of information #eciding on research methods Analysis and $nterpretation of data %reparing research report Follo0,up

1' $e!er;ine !/e Pr(b,e; 'he first basic step is to define the marketing problem in specific terms )nly if the marketing researcher kno0s 0hat problem management is trying to solve, he cannot do an effective *ob in planning and designing a research pro*ect that 0ill provide the needed information After the problem has been defined, the researcher&s task is to learn as much

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about it as the time permits 'his involves getting ac8uainted 0ith the company, its business, its products and market environment, advertising by means of library consultation and e"tensive intervie0ing of company&s officials 'he researcher tries to get a /feel1 of the situation surrounding the problem 9e analyses the company, its markets, its competitions and the industry in general 'his phase of preliminary e"ploration is kno0n as situation analysis 'his analysis enables the researcher to arrive at a hypothesis or a tentative presumption on the basis of 0hich further investigations may be done :hen a problem has been identified, ob*ectives of the research have to be determined 'he ob*ectives of the pro*ect may be to determine e"actly 0hat the problem is and ho0 it can be solved

2' $e!er;ine !/e S3e i-i In-(r;a!i(n Nee)e) an) S(*r e# (- In-(r;a!i(n 'he researcher should then determine the specific information needed to solve the research problems For successful operations of production and sales departments, 0hat information is re8uired depends to a large e"tent on the nature of goods and the method used for placing it in the hands of the consumers 'he investigator must identify the sources from 0hich the different items of information are obtainable and select those that he 0ill use 9e may collect information through primary data, secondary data or both %rimary data are those 0hich are gathered specifically for the pro*ect at hand, directly e g through 8uestionnaires and intervie0s %rimary data sources include: Company salesmen, middlemen, consumers, buyers, trade associations e"ecutives, and other businessmen and even competitors

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Secondary data are generally published sources, 0hich have been collected originally for some other purpose 'hey are not gathered specifically to achieve the ob*ectives of the particular research pro*ect at hand, but are already assembled Such sources are internal company records. government publiscations. reports and *ournals, trade, professional and business associations& publications and reports, private business firms& records, advertising media, Jniversity research organiEations, and libraries 3' $e i)ing (n Re#ear / Me!/()# $f it is found that the secondary data cannot be of much use, collection of primary data become necessary 'hese 0idely used methods of gathering primary data are: 4i5 Survey, 4ii5 )bservation, and 4iii5 !"perimentation :hich method is to be used 0ill depend upon the ob*ectives, cost, time, personnel and facilities available 4i5 *urvey Method: $n this method, information is gathered directly from individual respondents, either through personal intervie0s or through mail, 8uestionnaires or telephone intervie0s 'he 8uestions are used either to obtain specific responses to direct 8uestions or to secure more general response to /open end1 8uestions 4ii5 +bservational Method: 'he research data are not gathered through direct 8uestioning of respondents but rather by observing and recording their actions in a marketing situation 'he customer is una0are that heFshe is being observed, so presumably heFshe acts in hisFher usual fashion $nformation may be gathered by personal or mechanical observation 'his techni8ue is useful in getting information about the caliber of the salesman or in determining 0hat brands he pushes $n another situation, a customer may be 0atched at a distance and noticed, 0hat motivates him to purchase 4iii5 ,-perimental Method: 'his method involves carrying out a small,scale trial

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solution to a problem, 0hile, at the same time, attempting to control all factors relevant to the problems 'he main assumption here is that the test conditions are essentially the same as those that 0ill be encountered later 0hen conclusion derived from the e"periment are applied to a broader marketing area 'he techni8ue consist of establishing a control market in 0hich all factors remain constant and one or more test markets in 0hich one factor is varied 4' Ana,2#i# an) In!er3re!a!i(n (- $a!a After the necessary data have been collected, they are tabulated and analyEed 0ith appropriate statistical techni8ues to dra0 conclusions and findings 'his stage is regarded as the end product

5' Pre3ara!i(n (- Re3(r! 'he conclusions and recommendations, supported by a detailed analysis of the findings should be submitted in a 0ritten report 'he report should be 0ritten in clear language, properly paragraphed, and should present the facts and findings 0ith necessary evidence 'he choice of the 0ords, ade8uate emphasis, correct statistical presentation, avoidance of flo0ery language and ability to e"press ideas directly and simply in an organiEed frame0ork are essential for a good report

RE+IE& 7UESTIONS8 < :hat do you understand by marketing information systemM

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= > ? @ A

#iscuss the components and uses of marketing information system #efine marketing research and distinguish it from market research #iscuss the scope of marketing research Bring our the benefits and limitations of marketing research #iscuss the procedure of doing marketing research IIIIIIIIIIIII

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LESSON 6 ? PRO$UCT MI@

Learning (bje !i"e# After reading this unit, you should be able to understand 'he meaning and types of products. 'he product mi" and line decisions. 'he strategies involved in product modification and product elimination %roduct, the first of the four %s of marketing mi" has a uni8ue positions as it constitutes the most substantive element in any marketing offer 'he other elements price, place and promotion are normally employed to make the product offering uni8ue and distinct %roduct is, thus, the number one 0eapon in the marketer&s arsenal %roduct is comple" concept 0hich has to be carefully defined $n common parlance, any tangible items such as te"tiles, books, television and many others are called as products But an individual&s decision to buy an item is based on not only on its tangible attributes but also on a variety of associated non,tangible and psychological attributes such as services, brand, package, 0arranty, image etc 'herefore, to crystalliEe the understanding of the term 3product&, it 0ould be appropriate to take recourse to different definitions of 3product& given by marketing practioners

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According to Alderson, /%roduct is a bundle of utilities consisting of various product features and accompanying service1 'he bundle of utilities is composed of those physical and psychological attributes that the buyer receiver 0hen the buys the product and 0hich the marketer provides a particular combination of product features and associated services According to Sch0arE, /a product is something a firm markets that 0ill satisfy a personal 0ant or fill a business need1, and includes /all the peripheral factors that may include reputation of the manufacturer, the 0arranty, credit and delivery terms, the brand name and the courtesy sho0n by the sales and service personnel 1 %hilip ;otler defines product 3as anything that can be offered to a marketer for attention, ac8uisition, use of consumption that might satisfy a 0ant or need $t includes physical ob*ect, services persons, places organiEations and ideas 'he perusal of above definitions it is revealed that a product is not only an tangible entity, but also the intangible services such as prestige, image etc form an integral part of the product %recisely, the ans0ers to the follo0ing 8uestions the product policy of a firm: :hat products should the company makeM :here e"actly are these products to be offeredM 'o 0hich market or market segmentM :hat should be the relationship among the various members of a product lineM :hat should be the 0idth of the product mi"M

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9o0 many different product lines can the company accommodateM 9o0 should the products be positioned in the marketM :hat should be the brand policyM Should there be individual brands, family brands andFor multiple brandsM A product policy serves the follo0ing three main functions: < A product policy guides and directs the activities of 0hole organisation to0ard a single goal )nly rarely, product decisions are made solely by top e"ecutives More often such decisions re8uire the specialiEed kno0ledge of e"perts in many fields research, development, engineering, manufacturing, marketing, la0, finance and even personnel = A product policy helps to provide the information re8uired for decisions on the product line > A product policy gives e"ecutives a supplementary check on the usual estimates of profit and loss A sound product policy is thus an important tool for coordination and directions $t applies not only to those ma*or decisions 0hich are ultimate responsibility of general managers also to the many lo0er level employees 0ho also take day to day decisions PRO$UCT CLASSI1ICATION Marketers have developed several product classification schemes based on product characteristics as an aid to developing appropriate marketing strategies %roduct can be classified into three groups according to their durability:

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.urable "oods: #urable goods are tangible goods that normally survive many users !"amples include refrigerators, tape recorders, televisions etc

/on$.urable "oods: 'hese are tangible goods that normally are consumed for short period !"ample include soap, match bo" etc

*ervices: Services are activities, benefits or satisfactions that are offered for sale !"amples include banking, transport, insurance service etc

Another method of classifying products is on the basis of consumer shopping habits because they have implications for marketing strategy Basing on this, goods may be classified into three: Convenience "oods: -oods that the customer usually purchases fre8uently, immediately and 0ith the minimum effort 'he price per unit is lo0, !"ample: soaps, match bo" etc *hopping "oods: 'hese goods are purchased infre8uently 'he price per unit is comparatively higher 'he customer, in the process of selection and purchase of these goods compares the suitability, 8uality, price and style !"ample include furniture, clothing, foot0ear etc *peciality "oods: -oods 0ith uni8ue characteristics andFor brand identification for 0hich a significant group of buyers are 0illing to make a special purchasing effort 'he goods are e"pensive and purchased rarely !"amples include personal computers, cars, hi,fi components etc

In)*#!ria, Pr()* !# )ne of the 0ays of classification of industrial products involves t0o broad

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categories viE , 4<5 products that are used in the production of other goods and become a physical part of another product, and 4=5 products necessary to conduct business that do not become part of another product 'he products that become part of another product are ra0 materials, semi,manufactured goods, compeonets and subcontracted production services 'he products that are needed to conduct the business include: Capital goods, operating supplies, contracted industrial services, contracted professional services and utilities (a0 material include crude oil, coal, iron ore, other mined minerals, lumber, forestry product, agricultural products, livestock, poultry and diary products and the products of fisheries Semi,manufacturing goods are products, that 0hen purchased, have already undergone some processing but are incomplete in themselves !"amples are cotton fiber, castings, plate glass and plastics Components are completed products meant to become part of another larger, more complicated product !"amples include automobile batteries, headlights, tyres etc Subcontracted production services are in sue in large products !"amples are, subcontracting for installation of electrical, heating, air,conditioning and plumbing facilities to others Capital goods are manufacturing plants and installations, tools, machines, trucks etc )perating supplies are industrial products used to keep a business operating normally 'hese include lubricating oils, paper clips, cash registers etc 'he operating supplies usually have a relatively lo0 unit value, and are consumed 8uickly Contracted industrial services include such items as machine servicing and repair, cleaning, remodeling, 0aste disposal and the operation of the employees& canteens Contracted professional services include printing e"ecutive recruitment, advertisement,

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advertising, legal advice, professional accounting, data processing and engineering studies 'he industrial products in the category of utilities consists of energy, telephone, and 0ater

Ana,(g*e# Ter;# $n order to facilities further understanding it 0ill be appropriate to kno0 the meaning of some other terms also 0hich often recur in any discussion about product Some of these terms are discussed belo0: Need amily: 'he core need that actualiEes the product family !"ample: Safety !roduct amily: All the product classes that can satisfy a core need 0ith more or less effectiveness !roduct "ine: A group of products 0ithin a product class that are closely related, because they function in a similar manner or sold to the same customer groups or are marketed through the same types of outlets or fall 0ithin given price ranges !"ample: Cosmetics !roduct #tem: 'alcum po0der A distinct unit 0ithin a brand or product line that is

distinguishable by siEe, price, appearance or some other attribute !"ample:

PRO$UCT MI@ $ECISIONS Pr()* ! Mi.

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A product mi" 4also called product assortment5 is the set of all product lines and items that a particular seller offers to sale A company&s product mi" can be described as having a certain width, length, depth, and consistency. 'he 0idth of the product mi" refers to ho0 many product lines the company carries 'he length of product mi" refers to the total number of items in its product mi" 'he depth of product mi" refers to ho0 many product variants are offered of each product item in the line 'he consistency of the product mi" refers to ho0 closely related the various product lines are in end use, product re8uirements, distribution channels or some other 0ay 'hese four dimensions of the product mi" provide the bases for defining the company&s product strategy 'he company can gro0 its business in four 0ays 'he company can add ne0 product lines, thus 0idening its product mi" to capitaliEe the company&s reputation or the company can lengthen its e"isting product lines to become a more full line company or the company can add more product variants to each product and thus deepen its product mi" Finally the company can pursue more product,line consistency or less, depending upon 0hether it 0ants to ac8uire a strong reputation in a single field or participate in several fields

PRO$UCT LINE $ECISIONS Pr()* ! Line

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A product line is a group of products that are closely related, because they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets, or fall 0ithin given price ranges %roduct line managers have t0o important information needs First they must kno0 the sales and profits of each item in the line Second, they must kno0 ho0 the product line compares to competitor&s product lines in the same markets 4%roduct %ositioning5 )ne of the ma*or issues facing product,line managers is the optimal length of the product line 'he manager can increase the profits either by adding the product items if the line is too short or by dropping the items if the line is too long 'he issue of product,line length is influence by company ob*ectives FCompanies that 0ant to be positioned as full,lines companies andFor are seeking high market share and market gro0th 0ill carry longer lines 'hey are less concerned 0hen some items fail to contribute to profit Companies that are keen on high profitability 0ill carry shorter lines consisting of selected items %roduct lines tend to increase over time !"cess manufacturing capacity 0ill put pressure on the product,line managers to develop ne0 items 'he sales force and distributors 0ill also pressure for a more complete product lien to satisfy their customers LINE-STRETC9ING $ECISION !very company&s product,line covers a certain pair of the total range offered by the industry as a 0hole For e"ample, Maruti Jdyog automobiles are located in the lo0, medium price range of the automobile market +ine stretching occurs 0hen a company lengthens its product,line beyond its current range 'he company can stretch its line do0n0ard, up0ard or both 0ays

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$(4n4ar) S!re! / Many companies initially locate at the high end of the market and subse8uently stretch their line do0n0ard For instance, 'A'A 0ho are the producers of medium and high priceFbig car segment, no0 have stretched do0n0ard by entering into small car segment by releasing 'A'A $ndica 'he company is attached at invading the lo0 end 'he company finds that slo0er gro0th is taking place at the high end 'he company initially entered the high end to establish a 8uality image and intended to roll do0n0ard 'he company adds a lo0,end unit to plug a market hole that 0ould other0ise attract a ne0 competitor $n making a do0n0ard stretch the company faces some risks 'he ne0 lo0,end item may cannibaliEe higher,end items )r the lo0,end items might provoke competitors to counteract by moving into the higher end )r the company&s dealers may not be 0illing or able to handle the lo0er end products, because they are less profitable or dilute their image For instance, -eneral Motors resisted building smellers cars and Papanese companies spotted a ma*or opening and moved in 8uickly $t is interesting that after seeing the success of SuEuki in small car segment, the other leading companies such as 9onda and 'oyota are ne0 entering into the market the high end and decides to counter attach by

U34ar) S!re! /

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Companies in the lo0er end of the market might contemplate entering the higher end 'hey may be attracted by a higher gro0th rate, higher margins or simply the chance to position themselves as full,line manufacturers Again, it is Maruti 0ho initially entered in the small car segment entered higher end by production Maruti <GGG and Maruti !steem An up0ard decision can be risky 6ot only the higher end competitor 0ell entrenched but they may counter attack by entering the lo0er end of the market 'he company&s sales representatives and distributors may lack the talent and training to serve the higher end of the market

T4(-4a2 S!re! / Companies in the middle range of the market may decide to stretch their line in both directions

Line-1i,,ing $e i#i(n# A product line can also be lengthened by adding more items 0ithin the present range of the line 'here are several motives for line,filling such as reaching for incremental profits. trying to satisfy dealers to complain about lost sales because of missing items in the line. trying to utiliEe e"cess capacity. trying to be the leading full, line company and trying to plug holes to keep on competitors $f line,filling is overdone it may result in cannibaliEation and customer confusion 'he company needs to differentative each item in the consumer&s mind !ach item should possess a *ust noticeable difference 'he company should check that the proposed items en*oys more market demand as is not being added simply to satisfy an internal need

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RE+IE& 7UESTIONS < = > :hat are the different components of product mi"M :hat are different types of productsM !"plain product,line decisions

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LESSON 6 C NE& PRO$UCT PLANNING AN$ $E+ELOPMENT Learning Obje !i"e# After reading the lesson, you should be able to understand #efine the ne0 product and understand the need for ne0 product development 'he steps in the ne0 product development process. 'he product modification and elimination process. 'he concept and various stages of %roduct +ife Cycle 4%+C5

'he products and services are the most visible assets of the organiEations and the ne0 products are, hence considered to be the corner stone of the long term survival and prosperity of many organiEations 'he rapid technological changes, shifting patterns of 0orld market opportunities and the intense competition compel the business firms to continuously develop ne0 products and services for their survival But failure too in ne0 product development is not uncommon Apparently, ne0 product development is an unstable activity, inherent in most organiEations But 0hen market conditions pressuriEe there is no other go e"cept to take the risk of introducing ne0 products NE& PRO$UCTS $E1INITION #efining a ne0 product is not a simple task $n an absolute sense, it is something ne0 0hich has not e"isted before :hen considered in a relative sense, it is something ne0 0hich has not been e"perience before and perceived as ne0 $n defining ne0 products, the relative vie0 is considered more useful because 0hether or not something is

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absolutely ne0, the interested persons 0ho have not yet e"perienced it may represent opportunities or problems for consideration 'hus, a ne0 product is a multi,dimensional concept that has need satisfying capabilities for the stockholders interested in it and 0hich has not been e"perienced by a significant number of them. but capable of offering a strategic competitive advantage $t means a ma*or opportunity for an organiEation to create value Although there is numerous perspective from 0hich one could define a ne0 product, the follo0ing definitions are 0orth to be noted Musselman and Packson states that a product is said to be a 6e0 %roduct 0hen it serves an entirely ne0 function or makes a ma*or improvement in a present function According to Stanton, ne0 products are those 0hich are really innovative and truly uni8ue replacements for e"isting products that are significantly different from the e"isting goods and includes initiative products that are ne0 to a company but not ne0 to the market $f the buyers perceive that a given item is significantly different from competitive goods being replaced 0ith some ne0 features, like appearance or performance, then it is a ne0 product For ;otler, ne0 product mean original products, improved products, modified products and ne0 brands 0hich are developed by the firm through its o0n research and development efforts and includes those products 0hich the consumers see as ne0 A ne0 product is thus perceived differently by different people $t is a need satisfying concept 0ith benefit for buyers bundle of need satisfying features. for marketers, a 0ay to add value. for intermediaries, an opportunity to design. for (N# and to assemble and process for production department 6e0 product development is one for the most important components of product policy and product management $t is not enough if the e"isting product lines and

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products are appraised properly, positioned effectively and brand decisions taken 0isely :hat is re8uired, besides all these things, is that the organisation has to consider ne0 product developDe*mnt for the organiEation&s gro0th, 3$nnovate or die&, thus goes and old saying 'his is especially true in marketing Jnless the organisatoins innovate and introduce ne0 products, it cannot survive in the competitive market $n many cases the entire business strategies defining an organiEation&s future are built upon the portfolio of ne0 products 6e0 products are, therefore, the basis for follo0ing strategic reasons: NEE$ 1OR NE& PRO$UCT $E+ELOPMENT 'he follo0ing are the strategic reasons for launching ne0 products: 6e0 products meet the changes in consumer demands 6e0 products are the source of competitive advantage 'hey provide ling,term financial return on investment 'hey utiliEe the e"isting production and operation resources to an optimum level 'hey capitaliEe on research and development 'hey provide opportunities for reinforcing or changing strategic direction 'hey leverage marketingFbrand e8uity 'hey enhance corporate image 'hey affect human resources 'hey meet environmental threats

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1ig*re8 Ne4 Pr()* ! $e"e,(3;en! Pr( e##

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STEPS IN T9E NE& PRO$UCT $E+ELOPMENT PROCESS < = > ? @ A B C -eneration of 6e0 %roduct $deas Screening of $deas Concept #evelopment and 'esting Marketing Strategy #evelopment Business Analysis #evelopment of the %roduct Market 'esting CommercialiEation

1' GENERATION O1 NE& PRO$UCT I$EAS 'he ne0 product development process starts 0ith the search for ideas An idea Qis the highest form of abstraction of a ne0 product $t is usually represented as a descriptive statement, 0ritten or verbaliEed -enerally, more the number of ideas, the better

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'he ob*ective of this stage is to obtain 4a5 ideas for ne0 products, 4b5 ne0 attribute for the e"isting products, and 4c5 ne0 uses of the e"isting products S(*r e# (- Ne4 Pr()* ! I)ea# Ma*or sources of ne0 product ideas include sources, customer competitors, distributors and suppliers, and others In!erna, S(*r e#8 )ne study found that more than @@ percent of all ne0,product ideas come from 0ithin the company 'he company can find ne0 ideas through formal research and development $t can get ideas from its scientists, engineers and manufacturing people 'he company&s sales people are anther good source because they are in daily contact 0ith customers C*#!(;er#8 Almost =C percent of all ne0,product ideas come from 0atching and listening to customers 'he company can duct surveys or focus groups to learn about consumer needs and 0ants 'he company can analyses customer problems Companies can learn a great deal from observing and listening to customers Finally, consumers often create ne0 products on their o0n. and companies can benefits by finding these products and putting them on to the market C(;3e!i!(r#8 Abort >G percent of ne0,product ideas come from analyEing competitor&s products 'he company can 0atch competitors& advertisements and other and other communications to get clues about their ne0 products Companies buy competing ne0 products, take them apart to see ho0 they 0ork, analyEe their sales, and decide 0hether the company should bring out a ne0 product of its o0n

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$i#!rib*!(r#% S*33,ier# an) O!/er#8 (eseller are close to the market and can pass along information about consumer problems and ne0,product possibilities Suppliers can tell the company about ne0 concepts, techni8ues and materials that can be used to develop ne0 products )ther idea sources include trade magaEines, sho0s and seminars. government agencies. ne0,product consultants. advertising agencies. marketing research firms. university and commercial labouratories I)ea Genera!ing Te /niD*e# S$%T Analysis: $t is the analysis of the strength, 0eakness, opportunities and threats 'hrough S:)' analysis a company can make a conscious, deliberate, and systematic effort to identify opportunities that can be profitability e"ploited (egular S:)' analysis facilitators the generations of ideas Clear Articulating of %b&ectives: 'op management should define the products and markets to emphasiEe and by stating the operational ob*ectives clearly, it can channeliEe the efforts of employees and induce them to think more imaginatively 'here should be clear articulation and prioritiEation of ob*ectives to facilitate this orced Relationshi's: By this techni8ue several ob*ects are listed and considered in relation to each other For e"ample, a sofa and a bed, t0o separate products are combined into one, by removing the arms of a sofa and making the back collapsible, to form a sofa,cum,bed, fulfilling a felt need of using furniture in a limited space Mor'hological Analysis. 'he morphological analysis 0ill systematically e"plore the structural dimensions of a problem its basic parameters and all the kno0n alternative means of fulfilling them Need(!roblem Analysis: 'his techni8ue differ from the preceding ones in that they

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re8uire consumer input to generate ideas 9ere, the consumers are approached to find out their needs, problems and ideas 0ith reference to a particular product or pro*ect category Brainstorming: Brainstorming is an activity designed to provide ma"imum opportunity for the emergence of ne0 and creative ides, approaches and solutions to particular problems Synetics: $t is an operational theory for the conscious use of preconscious psychological mechanisms present in man&s creative activity and is particularly useful in the idea generation stage for ne0 product development "ateral Thin)ing: According to #e Bono, lateral thinking is a 0ay of using he mind, a deliberate process, a general attitude 0hich may make use of certain techni8ues on occasion 'he most basic principle of lateral thinking is that nay particular 0ay of looking at things in only one form among many other possible 0ays +ateral thinking is considered 0ith e"ploring other 0ays by restructuring and re,arranging the information that is available Chec) "ists: +iterally, it is a list of factors or actins 0hich should be considered or implemented in performing a predefined task such as launching a ne0 product

2' SCREENING I$EAS 'he purpose of idea generation is to create a large number of ideas 'he purpose of screening is to reduce that number 'he first idea,reducing stage is ideas screening 'he purpose of screening is to spot good ideas and drop poor ones as soon as possible $n this stage managers use their kno0ledge and e"perience to 0eed out the poor

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ideas and 0ill eliminate those ideas 0hich are inconsistent 0ith the firm&s product policies and ob*ectives, e"isting skills and resources and so on $n he same 0ay, ideas 0hich are incompatible 0ith the firm&s e"isting markets and customers are likely to be screened out 'o reduce the number of such ideas to an attractive, practicable level, some kind of preliminary screening is re8uired 'o0ards this, the follo0ing aspects have to be looked into: Compatibility 0ith the promoter Consistency 0ith governmental priorities Availability of inputs Ade8uacy of markets (easonableness of cost Acceptability of risk level

C(;3a!ibi,i!2 4i!/ !/e Pr(;(!er 'he idea being revie0ed must be consonant 0ith the interest, personality and resources of the firm $t should conform to the ob*ectives and goals of the firm and should be accessible Besides, it should offer the prospect of rapid gro0th and high return on invested capital

C(n#i#!en 2 4i!/ G("ern;en!a, Pri(ri!ie#

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'he operationaliEations of the idea must be feasible 0ithin the government policies and regulatory frame0ork $t should be ascertained that the idea does not contravene the environmental efforts or the government and that the idea can be pursued by obtaining necessary license and that the foreign e"change re8uirements, if any, can be met 0ith

A"ai,abi,i!2 (- in3*!# 'he firm must be reasonably assured of the availability of resources and inputs re8uired 'he organisation must assess 0hether the capital re8uirements are 0ithin manageable limits and that the technical kno0,ho0 re8uired for the pursuance of the idea is obtainable 'he organiEation should also assess the availability of ra0 materials domestically or if it is to be imported, 0ill there be any problems Availability of re8uired po0er supply also has to be ascertained A)eD*a 2 (- !/e ;ar0e! 'he organiEation must decide 0hether the present market siEe offers the prospect of ade8uate sale volume 'here must be a potential for gro0th and a reasonable return on investment Rea#(nab,ene## (- C(#! 'he cost structure of the proposal product must enable to realiEe an acceptable profit 0ith a competitive price $n this regard, the organisation should e"amine the costs of material inputs, labour costs, factory overheads, general administration e"penses, selling and distribution costs, service costs and economics of scale A e3!abi,i!2 (- Ri#0 Le"e,

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'he desirability of an ideas is critically dependent on the risk characteriEing it :hile assessing the risk, the organiEation should consider the vulnerability to business cycles, technological changes, competition from substitutes, competition from imports and -overnmental control over price and distribution 3' CONCEPT $E+ELOPMENT AN$ TESTING C(n e3! $e"e,(3;en! An attribute idea must be develop d into a product concept A product concept is distinguished form a product idea and product image :hile a product idea is a possible product that the company might offer to the market, its elaborated version e"pressed in meaningful customer terms is a product concept %roduct image is the particular picture of an actual or potential product perceived by the consumers At this stage, it is important to define the boundaries of the concept rather than the details 'he target market, customers, their applications, ma*or technical re8uirement etc have to be defined and issues like these are addressed in a concept level business plan 'he ne0 product concept, more specific in description than an idea, should include the customer, the ma*or consumer benefits and features defining the ne0 product 'he manger&s task is to develop the ne0 product into alternative product concepts, find out ho0 attractive each concept is to customers, and choose the best one 'he ne0 product concept can be verbal or 0ritten description $t may be in the form of a picture, diagram, model, or appear in another suitable presentation format 0hich depicts the idea $deas and concepts are often combined and are considered to be part of one creative process C(n e3! Te#!ing8 Concept testing calls for testing ne0,product concepts 0ith groups of target

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consumers 'he concept maybe presented to consuer symbolically or physically For some concept tests, a 0ord or picture description might be sufficient 9o0ever, a more concrete and physical presentation of the concept 0ill increase the reliability of the concept Obje !i"e# (- C(n e3! Te#!ing 'he ma*or ob*ectives of concept testing are: 4<5 'o get the reaction of consumer&s vie0s of the ne0 product idea 4=5 'o give direction regarding the development of the pro*ect 4>5 'o choose the most promising concepts for development and 4?5 'o ascertain 0hether the product in 8uestion has ade8uate potential for its commercialiEation 'oday, marketers are finding innovative 0ays to make product concepts more real to concept,test sub*ects Customer feed back can be critical in providing insights into ho0 potential customers 0ill use and evaluate the ne0 product 4' Mar0e!ing #!ra!eg2 )e"e,(3;en! After developing and testing the ne0 product concept, a ne0 product manager should proceed to develop a marketing strategy plan for introducing the product into the market 'he marketing strategy statement consists of three parts: 'he first part describes the siEe, structure and behaviour of the target market, the planned product positioning and the sales, market share and profit goals sought in the first three years

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'he second part outlines the product&s planned price, distribution strategy and marketing budget for the first year 'he third part describes the planned long,run sales and profit goals and marketing,mi" strategy over time

5' 5USINESS ANAL:SIS Business analysis is a stage 0here a ne0 product idea is sub*ected to more sophisticated and detailed analysis $t involves a revie0 of the sales, costs and profit pro*ections for a ne0 product to find out 0hether they satisfy the coGmpany&s ob*ectives $f they do, the product can move to the product,development stage $n a ma*ority of ne0 product development processes, three ma*or interrelated 8uestions emerge 'hey are regarding < 'he estimate siEe and gro0th rate of the market segment, that is, the market opportunity for the ne0 product concept = 'he estimate sales and market share for the ne0 product concept in the selected market or market segment > 'he values of the ne0 product program in terms of its e"pected financial performance Apparently these imply three types of ne0 product forecasting, viE , market opportunity forecasting, sales forecasting and financial forecasting 'hese forecasting processes address different sets of problems and their forecasts must be integrated to provide a complete picture of the commercial viability of the ne0 product Market opportunity forecasting assesses market siEe and gro0th for a ne0 product in a

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potential market under various assumptions Specific marketing research and modeling techni8ues are employer to measure sales response to alternative product concepts, prototypes and products and also price, distribution, promotion etc it ensures that key product design decisions are made interactively 0ith the market For Sales forecasting the company should look at the sales history of similar products and should survey market opinion $t should estimate minimum and ma"imum sales to assess the range of risk After preparing the sales forecast, management can estimate the e"pected product cost and profits, including marketing, (N#, manufacturing accounting, and finance costs Financial forecasting addresses the important 8uestion about the value of the ne0 product and its launch program $t reconciles market potential, market penetration, sales costs and investment forecasts to support decision making !stimates of profitability, cash flo0, and other proforma financial measures over a planning period can be established 'he ne0 product forecasting address ma*or decision problems and in effect, provide a frame0ork for a control system to track ne0 product lunch and make necessary revisions and modifications to achieve desired results 6' PRO$UCT $E+ELOPMENT %roduct development is done after forecasted sales and budgeted costs promise a satisfactory return on investment and after the company is satisfied that it can gain access to the target market At this *uncture, the ob*ective is to establish if it is physically possible to product an ob*ect 0ith the desired performance characteristics 0ithin the cost constraints indicated by the forecast demand schedule Jsually this phase is the longest in the 0hole process, and it is vitally important that, throughout development, the innovator should continue critically to observe events and changes

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in the proposed target markets $n addition to updating the product concept to reflect changes in the market $n addition to updating the product concept to reflect changes in the market, the development phase should also provide for testing the product under real usage condition to ensure that it 0ill deliver the promise satisfactions 'he more comple" the product and the more radical the behavioral change re8uired of the end user, the more important this stage becomes $n the case of many capital material and consumer durable innovation, the development stage fre8uently continues 0ell into the market launch stage on the ground that deficiencies and defects in the final product 0ill only become apparent once it is e"posed to a broad spectrum of usage situation Pr(!(!23e 'he (N# department 0ill develop one or more physical versions of the product concept to find out a prototype that 0ill be seen by the consumers as embodying the key attributes described in the product concept statement A prototype is a 0orking model or preliminary version of the final product, achieved through an implementation of the product concept For many products the prototype is the first full,scale likeness of the product. for other, it is a scaled,do0n model For some products a prototype is not possible 0ithout atleast a small,scale product launch $n such cases, prototyping and product development proceed simultaneously in market Scientist, engineers, designers, marketers and other responsible for product design and creativity 0ill be heavily involved in prototype development Some prototype may be relatively easy to develop, especially for organiEation already in business, for e"ample, a ne0 soap For other it may be more difficult $t is not sufficient to design the re8uired functions characteristics alone But the ne0 product developed team should also kno0 ho0 to communicate the psychological aspects through physical cues on the basis of an understanding as to

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ho0 consumer react to different colours, siEes, 0eights, and other physical cues >' MARKET TESTING After developing a prototype, they must be put through vigorous functional and consumer tests 'he functional tests are conducted in order to make sure that the product performs safely and effectively and they are conducted under laboratory and field conditions Consumer testing is done in a variety of 0ays 'hey may be done by bringing consumers into laboratory or they may be given samples to use in their homes $n,home product placement tests are common in products like ne0 home appliances, Consumer preference testing dra0s on variety of techni8ues, like simple ranking, paired comparisons, and rating scales, each 0ith its o0n advantages and disadvantages Market testing methods differ in testing different types of goods :hile testing consumer products, four variables are sought to be estimated 'hey are, trial, first repeat, adoption and purchase fre8uency $n testing the trade, a company seeks to learn ho0 many and 0hat types of retailers 0ill handle the product, under 0hat terms, and 0ith 0hat shelf position commitments Although test marketing can take a variety of forms, the three popular types used in practice in consumer goods markets are simulated, controlled and conventional test marketing ;otler classifies them according to the cost testing, from the least to the most costly, are 4<5 Sales,0ave research, 4=5 Simulated test marketing, 4>5 Controlled test marketing, and 4?5 conventional test marketing

Sa,e# &a"e Re#ear / $n this method the consumers are initially offered to try the product at no cost and

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subse8uently they are reoffered the product, or a competitor&s product, at slightly reduced prices 'hese reoffering, referred to as sales 0aves, may be restored to for as many as three to five times in order to find out ho0 many customer selected the product again and their reported level of satisfaction 'his method may also include e"posing customers to one or more advertising concept in rough form to ascertain its effects on repeat purchase 'he sales 0ave research can be implemented 8uickly Si;*,a!e) Te#! Mar0e!ing ASTMB $t is a research method that facilitates the measurement of market response to a ne0 product and its marketing program among potential buyers in a pseudo market environment $t can be implemented in a laboratory setting, n the homes or places of business of potential buyers or in other places that 0ill simulate the buying process as closely as possible 'he value of S'Ms is relatively lo0 cost, 8uick e"ecution, and secrecy from competitors $n many cases they are used to decide 0hether or not it is feasible to conduct a test market, and in other cases they are used to bypass test markets altogether and more directly to launch C(n!r(,,e) Te#! Mar0e!ing )ne of the gro0ing sources of data for ne0 product test marketing is the controlled or electronic test markets that provide single,source data 'ypically these are commercial services that are conducted in selected cities for test marketing Selected retail outlets in these cities are e8uipped 0ith electronic checkout scanners to record sales A recruited panel of customers agrees to shop in these stores, and the individual order and a special identification care are scanned every time, a panel member makes a purchase !ach card code is associated 0ith a profile of a customer kept in a data base 4containing demo,graphics, psychographics, and preferences and so on5 'he impact of

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local advertising and promotions during the test are also evaluated Bringing these data sources together on a 0eekly or even daily basis can provide a po0erful and highly controlled testing environment

C(n"en!i(na, Te#! Mar0e!ing $t provides an opportunity to understand market response to the ne0 product and its proposed marketing program in a more realistic market environment that in simulated and controlled test marketing $t is especially useful for measuring response to the product from a broader set of stakeholders, including competitors, the trade, media, regulator and others $t is also very helpful for discovering organiEational and other market problems in implementing the ne0 product program 'he real benefits to conventional test marketing are the learning and subse8uent ad*ustments that help ensure a successful launch, especially for ne0 product situations 0ith high stakes and high environment and market uncertainty 9o0ever, these benefits must often be traded off against cost and demands to speed market entry $ndustrial or business good can be tested in a number of 0ays, including trade sho0s, in,use situations, and sales presentations 'he first method consists of displaying and demonstrating the product to obtain measures of interest and possible buying intentions $n,use test place the product 0ith sample of potential buyers 0ho agree to try it and to provide an evaluation of its performance Sales demonstrations simply present the product to a sample of prospective customer sin an effort to learn ho0 many 0ould purchase it ?' COMMERCIALIEATION CommercialiEation can be considered as a final phase in the ne0 product development 0hen the product is launched into the market place, thus initiating its life

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cycle Supplies can be made available to the distribution channel, intensive selling must take place to ensure 0idespread availability at the point of sale or to canvass order from prospective buyers Maintenance and servicing facilities 0ill be necessary and a large promotional investment 0ill be needed to create a0areness of the ne0 product&s e"istence :hile commercialiEing a product, market entry decisions can be critical Market entry tends to be a highly situation specific decision 'he dynamics of the environment, the market, the organiEation, and its ne0 product developments process must be assessed by the decision maker 'hrough rules are lacking, the follo0ing guidelines 0ill help to make a sound decision 4<5 (ecogniEe the situational aspects of market entry. 4=5 Clarify the strategic importance of the market entry decision. and 4>5 Formulate the market entry decision problem 'he launch marketing program at market entry represents the point of e"ecution of a business strategy 'he company launching a ne0 product must first decide on introduction timing. 6e"t, the company must decide where to launch the ne0 product in a single location, a region , the national market, or the international market Fe0 companies have the confidence, capital, and capacity to launch ne0 products into full national or international distribution 'hey 0ill develop a panned market rollout over time $n particular, small companies may enter attractive cities or regions one at a time +arger companies, ho0ever, may 8uickly introduce ne0 models into several regions or into the full national market

PRO$UCT MO$I1ICATION $ECISION

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A product modification is may deliberate alteration in the physical attributes of a product or its packaging Nee) -(r Pr()* ! M()i-i a!i(n A number of factors may prompt the manufacturer to modify his product 'o make advantage of a ne0 technological development 'o modify the product out of competitive necessity 'o regenerate a product suffering from declining sales

'he attributes of the product such as taste, colour, siEe, material, functional features, styling and engineering, etc or combination of these attributes could be considered for modification 'hree important and contrasting product modification strategies are: Ruality improvement Feature improvement Styling improvement

A strategy of 8uality improvement aims at increasing the functional performance of the product its durability, reliability, speed, taste etc A manufacturer can often overtake competition by launching the ne0 and improved automobiles, television set etc A strategy of feature improvement aims at adding ne0 features such as siEe, 0eight, material, accessories that e"pand the products versatility, safety or convenience 'he advantages of feature improvement are:

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6e0 features build a company image of progressiveness and leadership. 6e0 features can be adapted 8uickly, dropped 8uickly and often made optional at little e"pense. 6e0 features can 0in the loyalty of certain market segments. 6e0 features can bring the company free publicity. 6e0 features can generate sales,force and distributor&s enthusiasm A strategy of style improvement aims a increasing the aesthetic appeal of the product 'he periodic introduction of ne0 car models amounts to style competition rather than 8uality or features competition $n the case of house,hold products, companies introduce colour and te"ture variations and often restyle the package 'he advantage of a style strategy is that it might confer a uni8ue market identity 2et style competitiosn has some problems First it is difficult to predict 0hether people 0hich people 0ill like a ne0 style Second, style changes usually, an discounting the old style, and the company risks losing some customers 0ho liked the old style 'he three stages of product modification 0ere contrasted as if they 0ere mutually e"clusive $n practice, a firm generally pursues some mi"ture of all three strategies Pust to maintain its competitive position, the firm must incorporate the latest development in 8uality, styling and functional features PRO$UCT ELIMINATION $ECISIONS %roduct eliminations is an act of discontinuing or dropping the e"isting product Many sick or marginal products never die. they are allo0ed to continue in the company&s product until they 3fade a0ay& As a result, these marginal

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products lessen the firm&s profitability and reduce its ability to take advantage of ne0 opportunities Rea#(n# -(r Pr()* ! E,i;ina!i(n 'he 0eak product tends to consume a disproportionate amount of management&s time $f often re8uires fre8uent price and inventory ad*ustments $f generally involves short production runs in spite of e"pensive set up times $t re8uires both advertising and sales,force attention that might better be diverted to making the 3healthy& products more profitable $ts very unfitness can cause customer misgivings and cast a shado0 on the company&s image $n vie0 of the costs of carrying 0eak products, 0hy does management shy a0ay from product,pruning programs due to logical as 0ell as sentimental reasons Sometimes, it is e"pected that product sales 0ill pick up in the course of time 0hen economic or market factors become more propitious Sometime, the fault is thought to lie in the marketing programme 0hich the company plans to revitaliEe $t may be felt that the solution lies in revie0ing dealer enthusiasm, increasing the advertising budget, changing the advertising theme or modifying some other marketing factor Management may feel that the solution lies in product modification through 8uality, styling or features 'he foregoing are all logical arguments for retaining 0eak products in the mi" But there are also situation such as management sentiment or *ust corporate inertia or presence of vested interests in retaining 0eak products

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'he ma*ority companies have not established orderly procedures for pruning their products Such action is usually undertaken either on a piece,meal basis or on a crisis basis, such as decline in total sales, piling inventories or rising costs But neither piecemeal running nor crisis pruning is really a satisfactory practice A some0hat more systematic approach is for the manufacturer to revie0 periodically all products 0hose profitability is less than the corporate average for each such product, the manager is re8uested to recommended action for improving earning or elimination of the product A company that 0ishes ot maintain a strong product mi" must commit itself to the idea of periodic product revie0, preferably by a product revie0 committee 'he product revie0 process begins 0ith collecting and analyEing the data for each product sho0ing industry sales, company sales, unit cost, prices and other information over the last several years, 0hich may reveal the most dubious products 'he dubious products are then rated basing on the criteria such as: :hat is the future market potential for this productM 9o0 much could be gained by product modificationM 9o0 much could be gained by marketing strategy modificationM 9o0 much e"ecutive time, could be released by abandoning the productM 9o0 good are the firm&s alternative opportunitiesM 9o0 much is the product contributing beyond the direct costs 9o0 much is the product contributing to the sale of the other products

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'he Committee then decides 0hich products to drop and then decides strategies for phasing our each of them For each product to be eliminated, management must determine its obligations to the various parties affected by the decisions Management may 0ant to provide a stock of replacement parts and service to stretch over the e"pected life of most recently sold units Some of the products can be dropped 8uite easily 0ith little repercussion 0hile other product eliminations 0ill re8uire an elaborate phasing, out plan Some of the factors that 0ill influence phasing,our tactics and timing are: 9o0 much finished and semi,finished stock remains in our inventory. ho0 much finished goods are in distributor&s inventoriesM :hat kinds of guarantees and compensations should be offered to distributors and consumers 9o0 soon could the e"ecutive and employees be shifted to other useful assignmentsM 9o0 much salvage value 0ould company get for its machinery and unfinished stockM Pr()* ! 1ai,*re 'he ne0 product development can be very risky )ne study found that the ne0 product failure rate 0as ?G percent for consumer products, =G percent for industrial products and <C percent for services 'he failure rate for consumer ne0 products is specially disturbing Rea#(n# -(r Ne4 Pr()* !# 1ai,*re

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4<5 A senior e"ecutive might push a favourit idea through in spite of negative markting research findings 4=5 'he idea may be good, but the market siEe is over estimated 4>5 'he actual product is not designed 4?5 'he product may be incorrectly positioned in the market 4@5 'he product may not be advertises effectively 4A5 'he product may be over priced 4B5 'he cost of product development may be higher than e"pected 4C5 'he competitions may be severe than e"pected 4D5 'he product might fail due to governmental regulation 4<G5 4<<5 4<=5 4<>5 'he product might fail due to inade8uate marketing research 'he product may fail due to delays in decision,making or poor timing +ack of managers attention to complaints $t may fail due to poor after,sales,service

'hus, the main reasons for the failure of ne0 products are: %oor marketing research. 'echnical problems in the ne0 products design or in its production. %oor timing in product introduction or ineffective launching, and )ther poor management practices

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T23e# (- Pr()* ! 1ai,*re < An absolute product failure: it losses money and its sales do not cover variable costs = A partial product failure: it loses money but its sale cover all the variable costs and some of the fi"ed costs > A relative product failure: it yields a profit that is less than the company&s normal rate of return PRO$UCT LI1E C:CLE +ike human beings, every product has a life span :hen a ne0 product is launched din the market, its life starts and the product passes thorough various distinct stages and after the e"piration of its life span dies dies in terms of its capacity to generate sales and profit 'his is called %roduct +ife Cycle 4%+C5 'he %roduct +ife Cycle is an attempt to recogniEe 3distinct stages& in the 3sales history& of the product $n each stage, there are distinct opportunities and problems 0ith respect to marketing strategy and profit potential 9ence, products re8uire different marketing, financing, manufacturing, purchasing and personnel strategies in the different stages of their life cycle 'he %+C concept provides a useful frame0ork for developing effective marketing strategies in different stages of the %roduct +ife Cycle 'here are four stages in the %roduct +ife Cycle introduction, growth, maturity and decline. Figure

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In!r()* !i(n S!age 'he introduction stage starts 0hen the ne0 product is first launched $n this stage only a fe0 consumers 0ill buy the product Further, it takes time to fill the dealer pipeline and to make available the product in several markets 9ence, sales 0ill be lo0 a profit 0ill be negative or lo0 'he distribution and promotion e"penses 0ill be very high 'here are only a fe0 competitors (egarding pricing, the management can pursue either skimming strategy i e fi"ing a high price or penetration strategy i e fi"ing a lo0 price 'he company might adopt one of several marketing strategies for introducing a ne0 product $t can set a high or lo0 level for each marketing variable, such as price, promotion, distributions and product 8uality Considering only price and promotion, for e"ample, management might launch the ne0 product 0ith a high price and lose promotion spending 'he high price helps recover as much gross profit per unit as possible 0hich the lo0 promotions spending keeps marketing spending do0n Such a strategy makes sense 0hen the market is limited in siEe, 0hen most consumers in the market kno0 about the product and are 0illing to pay a high price, and 0hen there is littlie immediate potential competition )n the other hand, a company might introduce its ne0 product 0ith a lo0 price and heavy promotion spending 'his strategy promises to bring the fastest market penetration and the largest market share $t makes sense 0hen the market is large, potential buyers are price sensitive and una0are of the product, there is strong potential competition and the company&s unit manufacturing costs fall 0ith the scale of production and accumulated manufacturing e"perience

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Gr(4!/ S!age $f the ne0 product satisfies the market, it 0ill enter a gro0th stage 'his stage is market by 8uick increase in sales and profits 'he early adopters 0ill continue to buy, and later buyers 0ill start follo0ing their lead, especially if they hear favourable 0ord of mouth 6e0 competitors enter the market, attracted by the opportunities for high profit 'he market 0ill e"pand %rices remain the same Companies maintain their promotional e"penditure at the same level or slightly higher level to meet competition and continue educating the market #uring this stage, the company uses the follo0ing marketing strategies: 'he company improves product 8uality and adds ne0,product features and models $t enters ne0 market segments $t enters ne0 distribution channel $t changes the price at the right time to attract more buyers

$n the gro0th stage, the firm faces a trade,off bet0een high market share and high current profit By spending a lot of money on product improvement, promotion and distribution, the company can capture a dominant position $n doing so, it gives up ma"imum current profit, 0hich it hopes to make up in the ne"t stage

Ma!*ri!2 S!age 'his stage normally lasts longer than the previous stages and it poses strong challenges to marketing management At this stage, sales 0ill slo0 do0n 'his stage can be divided into three phases gro0th maturity, stable maturity and decaying maturity

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$n the gro0th maturity phase, the sales start to decline because of distribution saturation $n the stable maturity phase, sales become static because of market saturation $n the decaying maturity phase, the absolute level of sales no0 starts to decline and customers starts moving to0ard other products and substitutes Competitions become acute Although many product in the mature stage appear to remain unchanged for long periods, most successful ones are actually evolving to meet changing consumer needs %roduct managers should do more than simply ride along 0ith or defend their mature products a good offense is the best defense 'hey should consider modifying the market, product and marketing mi" Mar)eting Modification: 'he company should seek to e"pand the market and enters into ne0 markets $t looks for ne0 users and find 0ays to increase usage among present customers !roduct Modificaiton: the company should modify the product&s characteristics such as 8uality improvement, features improvement, style improvement to attract ne0 users andFor usage from current users For gfdfgdsg dgdf gdf gdf gdf g df gdf gd fg df gdf g df gdf gfd g dg df gdf g d gdf gd fg d gdf gdf g dfg dg g dfg dfg df gdf g dfg gd fg dg d gd g dg df gdf gd fg dfg fd g g g df Mar)eting*mi+ Modification: 'he company should also try to stimulate sales through modifying one or more marketing,mi" elements such as price cut, step,up sales promotion, change advertisement copy, e"tending credit etc A ma*or problem 0ith marketing,mi" modification is that they highly imitable by competitors 'he firm may not gain as much as e"pected and in fact all firms my e"perience profit erosion as they complete each other

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$e ,ine S!age $n this stage, sales decline and eventually dip due to number of reasons including technological advances, consumer changes in tastes and acute competitions As sales and profit decline some firms 0ithdra0 from the market 'hose remaining may reduce the number of product offerings 'hey may drop smaller market segments and marginal trade channels 'hey may reduce the promotion budget and prices further 9ence, companies need to pay more attention to their aging products 'he firm has to identify those products in the decline stage by regular&s revie0ing sales, market shares, costs and profit trends 'hen, management must decide 0hether to maintain, harvest, or drop each of these declaiming products

Mar0e!ing S!ra!egie# )*ring !/e $e ,ine S!age $dentify the 0eak products by appointing a product,revie0 committee 0ith representatives from marketing, manufacturing and finance 'he firms may adopt the follo0ing strategies i5 Management may decide to maintain its brand 0ithout change in the hope that competitors 0ill leave the industry ii5 Management may harvest by selling 0hatever is possible in the market iii5 Management may decide to drop the product from the line

:hen a company decides to drop a product, the firm can sell or transfer the

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product to someone else or drop it completely $t must decide to drop the product 8uickly or slo0ly $t must decide on ho0 much parts in inventory and service re8uired to maintain service to past consumers USES O1 !"C CONCEPT %+C concept&s usefulness varies in different decision,making situations As a planning tool, the %+C concept characteristics the main marketing challenges in each stage and suggests ma*or alternative marketing strategies the firm might pursue As a control tool, it allo0s the company to compare product performance against similar products in the past CRITICISM O1 !"C CONCEPT < = %+C stages do not have predictable duration $t may very from product to product 'he marketer cannot tell at 0hat stage the product is in as there is no definite line of demarcation bet0een one stage to another stage > 6ot all products pass through all the stages $t is possible that the product may travel to the first and second stage and die out ? A product may not be in an identical stage in all the market segments. it may be in the second stage in one segment, 0hereas in the third stage in another segment at a particular point of time 6ot all products pass through all the stages of its life cycle Some products are introduced and die 8uickly. others stay in the nature stage for a long, ling time Some enter the decline stage and re then cycled back into the gro0th stage through strong promotion or repositioning (evie0 8uestions:

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< = > ?

#iscuss the various steps involved in ne0 product development process :hat are causes and methods of product modification and product eliminationM :hat are the reasons for ne0 product failureM :hat is %roduct +ife Cycle conceptM :hat are the stages of %+C conceptM !"plain their marketing implicationsM IIIIIIIIII

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LESSON 6 1F PRO$UCT-MARKET INTEGRATION STRATEGIES Learning Obje !i"e# After reading this lesson, you should be able to understand %roduct,market integration strategies. %roduct positioning and its significance. 'he meaning and the need for product diversification. %roduct,line simplification. %lanned product obsolescence.

%roduct, a component of the marketing,mi", can help achieve the marketing ob*ectives only 0hen there is integration bet0een the product and market %roduct,market integration may be defined as a state 0herein both product image and consumer self,image are in focus. there is a match bet0een product attributes and consumer e"pectations both economic and non,economic Such matching is cru" of the modern marketing concept, because it is essential for every marketer to develop such a product image 0hich is compatible 0ith the self,image of his consumers 'his should be the essence and ob*ective of all product management e"ercises

INTEGRATION PRO5LEMS

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6evertheless, there are al0ays problems associated 0ith such e"ercises 'he problems steam from the fact that 0hile product is one or limited in number, consumers are numerous and their self,images many and varied Jnder this situation, if a company attempts to meet consumer& individual self,images then it 0ould have to introduce as many products as there are 0rinkles on an old man&s face possibly even more Such an attempt 0ould be highly uneconomical from the standpoint of cost of production As such, a marketer is faced 0ith dilemma 0hether to meet consumer self,images or to avoid penalties of product economics $f the former is to be opted, then product,time proliferation and cost escalation are inevitable. in the latter case, the product line 0ill be narro0 and the cost structure balanced 9o0ever, both options are not inescapable and 0ithout problems $t is, therefore, al0ays advisable to develop in )ptimum Matching Strategy 4)MS5 bet0een the company&s products and markets O3!i;*; Ma! /ing S!ra!eg2 AOMSB )ptimum matching strategy may be defined as the method of matching product and consumer self,images in such a 0ay that in some market segments there is full matching 0hereas in others not so, so that the cost,revenue e8uilibrium is maintained 'he strategy comprises market segmentation, product offering and product differentiation 'he 0hole market is divided into three segments, viE core, fringe and Eone of indifference $n the core market, the company attempts to attain a full match bet0een the product and the self,image of the groups of consumers $n the fringe market, the match bet0een the product image and the self,image of consumers may be only partial 'his partial match may be in terms of less than full ocmpatibality in respect of the product image and all the variables of consumer self,image, namely, economic and non,economic psychological, sociological and cultural or alternatively, full matching in respect of others $n the Eone of indifference, there is absolutely no attempted matching bet0een

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product image and consumer self,image :hatever matching that may emerge is only random :here the strategy of full matching is employed, a higher make,up may be attempted relative to partial and no matching strategies in order to earn larger profits from the core market and to compensate for the loss of consumer satisfaction in the fringe market and Eone of indifference arising out of the non,Gfulfilment of the non,economic e"pectations $n the fringe market and the Eone of indifference, since there is only partial and random matching respectively, the company may attempt product differentiation so as to convey an impression of matching 'his may be attained 0ith the effective use of advertisement and sales promotion 'hrough this strategy, consumer may be made to perceive products in such a 0ay that semblance of matching is attained and products are bought $n reality, in this 0ay, a company attempts to reshape consumer self,images so as to fit 0ith the product image 'he other strategies through 0hich product,market integration may be attained include product positioning, diversification, simplification, planned obsolescence and branding and packaging

PRO$UCT POSITIONING %ositioning is the set of activities 0hich help create a perceptible difference bet0een a brand and its competitors in the mind of the consumer %ositioning goes beyond the physical or functional characteristics of a brand $t includes also the non, functional or psychological characteristics of a brand $n the consumer&s mind,space, a brand occupies a 3position& in relation to competitive brands Surf and Ariel are perceived to be closer to each other 0hile :heel and 6irma are 3%ositioned& in 8uite another space

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'he perceived image of a brand is the property of the consumer&s mind '0o brands of a product may be identical in terms of physical attributes but could be perceived differently by the consumer %ositioning involves placing a brand in certain distinct and preferably uni8ue 0ay in the consumer&s mind Basically, one may take either the 3information route& or the 3imaginary route& to build a position $n the <GGcc motorbikes category, ' 7 S SuEuki took the information route, ;a0asaki Ba*a* took the imagery route and 9ero 9onda used a skilful combination of both and it is easy to recogniEe that these brands are perceived differently by the consumer although they may not be generically very different $f one consider a consumer&s mind space as allotting specific positions for various brand of a product, the e"tent of competitions a brand faces can be studied depending upon the distance bet0een the brand and other brands in the space Such a graphical representation is called a perceptual map C)(!, the marketing research division of Clarion Advertising conducted a positioning study of some toilet soap brand and found the results to be as depicted in this figure:

9ere the 2 a"is represents the cosmetic benefit or /feels good1 factors and the

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9ealth related benefits or the /does good1 factors 'he K a"is represents popular pricing versus high or premium pricing As the figure sho0s, there are hardly any brands in the lu"ury cosmetic segment, 0hile the utility cosmetic segment is cro0ded Margo is the sole purveyor of the 9ealth related utility segment 'his study 0as conducted in <DCD, among 0omen in :est Bengal $t 0ould be interesting to include Camay, Medimi", +esancy, %ears, (e"ona, !vita, %almolive, +ifebuoy, 6irma Bath, Moti, Santoor, #ove, -anga, #ettol the list is e"haustingS Further, the men&s toilet soap category has also opened up, the baby soaps category boasts of a fe0 brands and the li8uid soaps category presents its international appeal %ositioning alone can determine the brands that 0ill keep going and the gonersS T:PES O1 POSITIONING A product&s image is created among the consumers based on the follo0ing aspects: 1' Pr()* ! A!!rib*!e I;age# Since some of the brands have e"cellent product features they directly appeal to consumers !"ide is considered to be the batter 0hich has no troubles at all %romotion message, each time, concentrates on the consumer gains resulting from product performance %hilip emphasiEes the 8uality plank and B%+ audios emphasis on the fidelity platform 2' S2;b(,i Pr(je !i(n# $n those products 0ith not much differentiation 0ith other competitors, position arises from broad symboliEations rather than the product performance Beer advertising is one such Since the product does not differ in many brands, the emotional moods are used as product attributes )6$#A has used the devil to sell its products as depicted in their advertisements, on seeing a devil one immediately

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recogniEe )6$#A television 3' $ire ! C(;3e!i!i"e P(#i!i(ning $n this approach, a products& position use the competitor&s position as a reference point Classic e"ample is that of pepsi and coke B,up position itself as an uncola 7ideocon uses the sales figures of competitors as selling point $ndian Airlines have also started advertising 0ith response to the private airlines advertisement REPOSITIONING A brand does not have to be stuck 0ith the image it has oGnc created Since the competitive environment and nature of the product changes it is imperative to reposition the product among the consumers (epositioning 0ill sometime give ne0 life to the sales of the brand 'his is done also in the cases of declining market share Any change in market share provide a direct indication of competitive standing market potential data may reflect on the e"pansion, contraction or stability of industry volume $n the case of declining market share it is advisable to reposition the product into ne0 market An e"panding or gro0ing market represents additional opportunities in the long term (epositioning may be necessary 0hen share in a gro0ing market declines Such a decline suggests that the brand in not getting additional sales in proportion to 0hat it had in the past $n the case of increasing share is an e"panding market, repositioning is not re8uired PRO$UCT $I+ERSI1ICATION $n the pursuit of product,market integration, a number of policy and strategy option are available to a company )ne among them is product diversification. /#iversification is a policy or management philosophy of operating a company so that its business and profits come from a number of sources, usually from diverse products that differ in market or production characteristics1

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Jnlike other product policies and strategies, the distinguishing feature of the policy of diversification is /to increase the number of products in the product portfolio of the company1 $t involves fundamental change in the old product, say, in its modular construction, but not merely a tactical ad*ustment in the design, style, colour of siEe of the product to gain temporary market advantage

Rea#(n# -(r $i"er#i-i a!i(n A study of the business literature and analysis of the company histories reveal that the 8uestions of corporate survival, stability and gro0th are the prime movers of diversification 'he follo0ing are the specific reasons for diversification: *urvival 'o offset declining or vanishing markets 'o compensate for technological obsolescence 'o offset obsolete facilities 'o arrest declining profit margins 'o offset an unfavourable geographic location brought about by changing economic factors *tability 'o eliminate of offset slumps 'o offset cyclical fluctuations

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'o maintain employment of labour force 'o provide a balance bet0een high and lo0 margin products 'o provide a balance bet0een old and ne0 products 'o maintain market share 'o meet ne0 products of competitors 'o maintain an assumed source of supply 'o reduce dependence on e"isting products

Kin)# (- $i"er#i-i a!i(n8 (ori)ontal diversification may be described as introduction to ne0 products 0hich are akin to the industry&s product,line 'hey ne0 products so introduced may not contribute anything to the present products in any 0ay but may cater to the mission 0hich lie 0ithin the realm of the industry of 0hich the company is a member 0ertical diversification may be described as inclusion of ne0 products such as components, parts, and materials in the current product portfolio of the company 'hese ne0 products perform distinct and different missions from that of the original products 1ateral diversification may be described as a move to e"pand product line beyond the confines of the industry $t may include may kind of product 0hich may be totally different For instande, the Bata 0hich are primarily in foot0ear business have diversified their business into readymade garments Similarly, the (aymonds 0ho are basically in te"tile business have diversified their business into foot0ear

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PRO$UCT-LINE SIMPLI1ICATION Simplification may be defined as, deleting or eliminating from the product,line those product items 0hich no more satisfy the criteria laid do0n by a company for retaining products in the line $t is the opposite of product diversification and involves all those managerial e"ercises 0hich aim at product,line rationaliEation Nee) -(r Pr()* ! Si;3,i-i a!i(n #eclining absolute sales volume Sales volume decreasing as a percentage of the firm&s total sales #ecreasing market share %ast sales volume not up to pro*ected amounts !"pected future sales disappointing Future market potential not favourable (eturn on investment belo0 minimally acceptable level 7ariable cost e"ceeds revenues 7arious costs as percentage of sales consistently increasing $ncreasingly greater percentage of e"ecutive time re8uired %rice must be consistently lo0ered to maintain sales %romotional budgeted must be consistently increased to maintain sales )nce a decision to abandon a product is taken, company must formulate a programme

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for its smooth deletion so that it is implemented 0ith minimum of problems

PLANNE$ O5SOLESCENCE 'he 0ord 3obsolescence& means to 30ear out& or 3fall into disuse& :hen applied to products, obsolescence means 0earing our or falling into disuse of products in terms of consumer acceptance :hen it is kno0n that every product is liable to get out of use, there are t0o options available to a marketer 'he first option is to allo0 the product to die out in a natural 0ay $n this, marketers, accept product death as fait accompli after having suffered sufficient cost pressures and lost profit opportunities 'he second option is to plan its death in advance so that it 8uits at a time desired by the management $t 0ears out and fall into disse on the e"piry of a fi"ed time period 'his is called the strategy of Planned +bsolescence and has been defined as, /a purposeful programme of vendors to shorten the time span or number of performance over 0hich a product continues to satisfy customers thus presumabley encouraging an early purchase for replacement 'he obsolescence of a product may be due to follo0ing factors : %hysical incapacity of the product to continue performance of he intended service or function due to breakage, 0ear or corrosion Availability of close and better substitutes of current liabilities Changes in consumer perception about products& acceptable usefulness

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RE+IE& 7UESTIONS8 < = Suggest product,market integration strategy :hat do you understand by 3product positioning1M 0hat are the ob*ectives of positioningM > ? :hat is product diversificationM Specify the reasons :hat do you understand by product,line simplificationM :hat is the need for such simplificationM @ :hat is planned product obsolescenceM IIIIIIIIIII

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LESSON 6 11 5RAN$ING AN$ PACKAGING $ECISIONS Learning Obje !i"e#8 After reading this lesson, you should be able to understand, 'he meaning and reasons for branding 'he different and branding decisions 'he meaning, types of packaging 'he functions and decisions areas of packaging 5RAN$ING 'he selection of a proper brand name is the ma*or step in managing a product 'he branding of a product is like naming a ne0,born child $t basically serves to identify the offering Branding can add value to a product and is therefore an intrinsic aspect of product strategy !ssentially, a brand is a promise of the seller o delivers a specific set of benefits or attributes or services to the buyer !ach brand represents a level of 8uality Some key definitions of branding are: Brand: Brand is a name, term, sign, symbol or design or a combination of them, 0hich is intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors 'hus a brand identifies the maker or seller of a product Brand Name: $t is that part 0hich can be vocaliEed the utterable !"ample:

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7ideocon, #alda Brand Mar): it is that part of a brand 0hich can be recogniEed such as a symbol, design or distinctive colouring or lettering planning Trade Name ( Mar): it is brand name of symbol that is given 3legal protection& because it is capable of e"clusive appropriation by the seller 5RAN$ING $ECISION 'he first decisions is 0hether the company should put a brand name for its product 9istorically, most products 0ent unbranded But to,day, branding has become such a strong force that nothing goes unbranded For instances, salt is also no0 marketed in distinctive manufacturer&s brand REASONS 1OR 5RAN$ING < 'he brand name makes is easier for identification of the product both for the marketer and consumer = > $t makes easier to process orders and track do0n problems 'he brand name and trade mark provide legal protection of uni8ue product features 0hich 0ould other0ise be copied by competitors ? Branding gives the marketer the opportunity to attract loyal and profitable set of customers by creating brand image and brand loyalty @ A -ood brand helps build the corporate image Branding helps the marketer to markets !"ample: 3Butterfly& of Co,opte"&, 3Mahara*a& of Air $ndia or 3(ed $ndia or 3(ed colour inverted triangle& for Family

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Brand names help making the product easier to handle, identifying suppliers, holding production to certain 8uality standards and increasing buyer preference Brand names also help consumers to identify 8uality differences and to make efficient purchase SELECTION O1 5RAN$ NAME 'he brand name should be carefully chosen A good name can add greatly to a product&s success Most large marketing companies have developed a formal brand name selection process Finding the best brand name is a difficult task $t begins 0ith a careful revie0 of the product and its benefits, the target market, and proposed marketing strategies A good brand name should basically posses the follo0ing 8ualities: $t should be short, simple and easy to pronounce For e"ample, Jsha, +u", (in etc 'he brand name should be distinctive $t should be easy to recogniEe and remember !"ample: $ndica $t should be pleasing 0hen pronounced !"ample: MatiE $t should be capable of registration and legal protection $t should not be offensive, obscene negative $t should be adaptable to packaging and labeling re8uirements and to any advertising media $t should suggest something about the product&s benefits and 8ualities !"ample: Coldspot

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5ran)-S3(n#(r $e i#i(n $n deciding to brand a product, the manufacturer has several options 0ith respect to brand sponsorship 'he product may be launched as a manufacturer,o0ned )r it may be launched by the manufacturer as a licensed name brand )r the manufacturer may sell the product to middlemen, 0ho put on a private brand 0ho called middlemen brand, distributor brand of dealer brand

5ran) Na;e S!ra!egie# Companies follo0 different strategies in choosing brand names for the 0ide range of products they market In)i"i)*a, 5ran) Na;e# Some companies choose distinct names for each of their offering For instance, 9industan +ever, %rocter and -amble favour individual brand names for their products 'here are many reasons for doing this: %roducts marketed by a company may become diverse and hence re8uire distinct names Companies may 0ish to market their combination of products to different market segments Sometimes companies may have, multiple brand of a product, 0hich compete 0ith each other 'he company does not tie its reputation to the product&s acceptance $f the product

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fails, it does not compromise the manufacturer&s name A ne0 name permits the building up of ne0 e"citement and conviction 1a;i,2 5ran) Na;e Some companies use a common or successful family name, also kno0n as umbrella branding, for its several products !"ample: Ba*a*, -odre*, %onds etc Jsing a blanket family name for all products has some advantages: <5 'he cost of introducing the product 0ill be less because there is no need for 3name& research or for heavy advertising e"penditures to create brand,name recognition and preference =5 Sales 0ill be more if the manufacturer&s name has a reputation For instance, '7S :ashing Machine, /9itachi1 Air conditioners etc 'he use of the family branding strategy does not al0ays guarantee success 'here are many instances 0here this strategy has failed %onds launched its tooth paste, using the distinctive flo0ered pint packaging 0hich it associated 0ith its talcum po0der 0ith the same family brand name Market survey revealed that this tooth paste had failed despite name it is also risky to launch a ne0 product under the brand name of another highly successful product, if successive products under a family brand name do not perform 0ell, the established good0ill or image may suffer 'he strategy of using a common family brand name 0ill be perhaps more effective in marketing ne0 variations of the basic product For this reason +iril, Cinthol Soap 0ith an improved perfume 0ere 0ell accepted in the market 5RAN$ IMAGE 'he term brand image signifies the reputation and the symbolic meaning attached to a brand $mage is an abstract concept incorporating the influences of

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past promotions, reputations and peer evaluation of that brand Broadly speaking, the totally of any brand is made up of three types of appeals A''eal to Reason: it basically consists fo many ob*ective factors of evaluation For e"ample, 0hat dies the brand doM :hat does it containM 9o0 does it performM :hat benefits or functisn does it serveM A''eal to Senses: 9o0 does the brand look, taste, smell, sound etc 9ere brand attempt to satisfy the consumer&s 8uest for sensory gratification, convenience, aesthetic pleasure, intellectual satisfaction etc A''eal to ,motions: it refers to the brand&s style, the mood it evokes and the psychological re0ards it gives Although these are mostly intangible factors they create significant impressions on the consumer

'he above appeals collectively produce the brand image 9o0ever, the image of brand may vary from one consumer to another 'he core of the brand image is created by the advertising and other marketing programmes initiated by the company Jltimately, the typical consumer 0ill filter various communications about the brand and 0ill develop an image on the basis of his e"isting beliefs, pre*udices and predispositions Many firms strive to build uni8ue brand name that 0ill eventually become identified 0ith the product category For instance, though 3#alda& is the brand name, it has identified 0ith the product category 7anaspathi 5RAN$ I$ENTI1: Brand image, as already observed, is perceptional 0hereas brand identity is

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aspirational $t means brand identity covers

even those perceptions 0hich a brand

managers 0ould like to be associated 0ith the brand $t means a brand manager 0ould like a brand image to travel to brand identity 0hich is the goal Brand identity has t0o dimensions structurally an inner core identity and e"tended identity

5ran) I)en!i!2 in Mar*!i Car8 Maruti&s core identity is identity is that it is a small, economical, fuel efficient car 0ith proven technology $ts e"tended identity includes its largest market share and availability of cares for every need $ts proven Papanese technology adapted to $ndian conditions is also an important element of e"tended identity B(A6# %!(S)6A+$'2 A simple method to describe brand personality is to state in terms of demographic characteristics life style and personality traits 'here are five personality factors namely sincerity, !"citement, competence, sophistication and ruggedness Pust like human beings, a brand also has a personality 0ith a set of characteristics 'hese characteristics are demographic such as a se", age and socio,economic class For e"ample, moped are feminine 0hereas mobikes are masculine (in is upper class 0hereas 3$deal Soap&, 3%o0er Soap& are middle class %arag and Apoorva Sarees are for the sophisticated modern 0omen, 0hereas %oonam Sarees are for common 0omen Brand have certain physical characteristics i e ho0 they look and sound have certain skills and abilities i e 0hat they can do and ho0 they can person and certain associations and attitudes 'he brand therefore appeals to senses, to reason and to emotions !ach brand has its has o0n personality

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'hus, brand personality is a sum total of look, an attitude, a pattern of behaviour and style Both product,related factors such as 3(uf and 'uf&, 3Peans& for young men and non,product related factors such as film,stars using +u", to make them glamorous influence the formation of brand personality Brand personality provides an added insight,into the brand 'he consumers associate their personality to the products and that decide their attitudes to0ards the product $t helps to differentiate the brand and helps in position strategy Further it makes promotion easier 'he brand personality and product attribute and complement to each other 5RAN$ POSITIONING Brand positioning is the result of consumer&s perception about the brand relative to the competing brands Brand positioning is a part of brand identity and value composition that is to be actively communicated to the target audience and that demonstrates an advantage over competing brands According to ;otler positioning is the act of designing the company&s offer so that it occupies a distinct and valued place in the mind of the target customers 5RAN$ E7UIT: Brand vary in the amount of po0er and value they have in the marketplace Some brands are largely unkno0n to most buyers )thers brands, have high degree of consumer brand awareness. Still others en*oy brand preference 2 buyers select them over the others Finally, some brands command a high degree of brand loyalty. Brand e8uity is the process of brand building Albar defines brand e8uity as a set of assets associated 0ith a brand and 0hich

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add to the value provided by the productFservice to its customers A brand e8uity is in effect the aggregate of potential customer&s beliefs that it 0ill deliver on its promise 'hus the term brand e8uity refers to the value inherent in a 0ell kno0n brand name A po0erful brand has high brand e3uity Brands have higher brand e8uity to the e"tent that they have higher brand loyalty, name a0areness, perceived 8uality, strong brand association, and other assets such as patents, trademarks and channel relationships A brand 0ith strong brand e8uity is a valuable asset $n fact it can even be bought or sold a price 'he 0orld&s top brands include Coca,Cola, ;odak, Sony and Mercedes,BenE 'he best e"ample fo brand e8uity is +ifebuoy 0hich has consistently follo0ed a strategy of a 3Soap for 9ealth& and similarly as 39erbal Soap& 3Brand heritage& means brands 0hich have a glorious past and a carefully nurtured image build over a period of time 9igh brand e8uity provides a company 0ith many competitive advantage A po0erful brand en*oys high level of consumer brand a0areness and loyalty Consumers accept and 0illing to pay more fore the po0erful brand 'he company 0ill incur lo0er marketing cost relative to revenues 'he company has more leverage in bargaining 0ith resellers, and 'he brand name carries high credibility, the company can more easily launch brand e"tensions A po0erful brand offers the company some defense against fierce price competition Measuring the actual e8uity of band name is difficult Because it is so hard to measure, companies usually do not list brand e8uity on their balance sheets Still, they pay handsomely for it According to one estimate, the brand e8uity of Coca,

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Cola is T>A billion, ;odak film T<G billion 'o build brand e8uity, the manager has to create and enhance brand a0areness, brand loyality and perceived 8uality of brand and brand associations 4i e associating 0ith certain tangible and intangible attributes5 $t should be understood that a brand is an intellectual property and thence patents form a brand asset 'his re8uires continuous (N# investment, skillful advertising and e"cellent trade and consumer service Some companies appoint /brand e8uity managers1 to guard their brands& images, association and 8uality Some analysis see brands as the ma*or enduring asset of company, or lasting the company&s specific products and facilities 2et, behind every po0erful brand stands a set of loyal customer 'herefore, the basic gdgdsfg underlying brand e8uity is customer e3uity 'his suggests that marketing strategy should focus on e"tending loyal customer lifetime value, 0ith brand management serving as a ma*or marketing tool

5ran) E.!en#i(n $e i#i(n A brand,e"tensions strategy is any effort to use a successful brand name to launch product modification or ne0 products Brand e"tension also covers the introduction of ne0 package siEes, flavours and models Brand e"tension saves the manufacturer the high cost of promoting ne0 names and creates instant brand recognition of the ne0 product At the same time, if the ne0 product fails to satisfy, it might hurt consumer&s attitude to0ard the other products carrying the same brand name

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M*,!i-5ran) $e i#i(n $n multi,brand strategy, the seller develops t0o or more brands in the same product category Manufacturer adopt multi,brand strategies for several reasons: Manufacturers can gain more shelf space, thus increasing the retailer&s dependence on their brands A fe0 consumers are to loyal to a band that they 0ill not try another 'he only 0ay to capture the 3brand s0itchers& is to offer several brands Creating ne0 brands develops e"citements and efficiency 0ithin the manufacturer&s organisation A multi,brand strategy positions the different benefits and appeals and each brand can attract a separate follo0ing For e"ample, %almolive Shaving Cream is offered in +ime, +avender and Antiseptic classes 'o0 or more brands commonly capture more sales and profits because they cater to more segments $t helps to sell ne0 product variations in terms of colour, flavour, taste etc For e"ample, Campa,)range and Campa,Cola $n deciding 0hether to introduce another brand, the manufacturer should consider such 8uestions as: Can a uni8ue story be built for the ne0 brandM :ill the uni8ue story be believableM 9o0 much 0ill the ne0 brand connibalise the manufacturer&s other brands versus competitor&s brandsM

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:ill the cost of product development and promotion be covered by the sales of the ne0 brandM

A ma*or limitation in introducing a number of multi,brand entries is that each may obtain only a small share of the market and none may be particularly profitable 'hese companies should 0eed out the 0eaker brands and establish tighter screening procedures for choosing ne0 brands $deally, a company&s brand should cannibaliEe the competitor&s brands and not each other 5RAN$ RE-POSITIONING $ECISION 9o0ever, 0ell a brand is initially positioned in a market, the company may have to reposition it later A competitor may have launched a brand ne"t to the company&s brand and cut into its market share )r customer preferences may have shifted, leaving the company&s brand 0ith less demand Management must 0eigh t0o factors in making its choice of re,positioning 'he first is the cost of shifting the brand to the ne0 segment 'he cost includes changing the product&s 8ualities, packaging, advertising and so on $n general, the repositioning cost rises 0ith the repositioning distances 'he more radically the brand image has to be modified, the greater the re8uired investment 'he other factor is the revenue that 0ould be earned by the brand in the ne0 position 'he revenue depends upon the number of consumers in the preference segment, their average purchase rate, the number and strength of competitors in that segment and the price charged by brands in that segment Marketing research firms have elaborate name research procedures including association tests 40hat images come to mindM5, learning tests 4ho0 easily is the name pronouncedM5, memory tests 4ho0 0ell is the name rememberedM5 and preference tests 40hich names are preferredM5 9orlicks 0as relaunched as a 6e0 9orlicks in an attractive ne0 *ar 'he ne0

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9orlicks claimed more nourishment through additional protein and calcium, eight essential vitamins and iron nutrients 6o0 3Punior 9orlicks& has been introduced targeting youngsters +ifebuoy is probably the oldest toiled soap available today From its small beginnings in !ngland in <CD?, +ifebuoy has come a long 0ay to become one of the most popular and larges selling soaps in the 0orld :hen +ifebuoy 0as introduced in the $ndian market <GG years ago, its positioning 0as clear +ifebuoy 0as the soap that 0ould destroy germs and keep the body healthy 'hough the properties 0ere clear, the brand found the going tough in rural markets 'herefore 9industan +ever +imited decided to launch +ifebuoy as soap for hand 0ash in <DGG 'he brand began to develop and at this stage, +ifebuoy 0as repositioned as a bath soap /:here there is +ifebuoy, there is health1 became a very popular slogan $n <DA?, the brand 0as relaunched 0ith a slight change in its shape and 0rapper design backed by po0erful advertisement and intensification in rural markets :ith intensification of competition in <DBG, 9industan +ever +imited launched 3+ifebuoy a %ersonal& a perfumed, pink,coloured, B@ gm soap But the brand suffered because it did not carry the JS%&s health and value for money $n <DCG, the 9industan +ever +imited launched 3+ifebuoy %lus& 0ith a ne0 perfume By this time, +i8uid +ifebuoy also stages its entry to strengthen urban market $n the rural markets, +ifebuoy continued its dominance !ven today AG per cent of +ifebuoy sales are from rural areas 'he brand remains the larges selling brand and a Cash Co0 for 9industan +ever +imited

PACKAGING $ECISIONS %ackaging has become a very important part of product management :ith

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competition increasing, marketers are turning to innovative packaging to establish a distinctive edge Marketers are providing value addition to products and greater benefits to consumers through packaging, thereby attempting to increase the brand value %ackaging includes the activities of designing and producing the container or 0rapper for a product 'he package may include the product&s primary container. a secondary package that is thro0n a0ay 0hen the product is about to be used +abeling is also part of packaging and consists of printed information appearing on or 0ith the package
1*n !i(n# (- Pa 0aging

$t contains and protects the product $t attracts the attention of the consumers $t describes the product $t helps for easily handling $t helps for self,services

'he follo0ing are the main decision areas in packaging: %ackage Material %ackage aesthetics %ackage SiEe and Convenience

PACKAGING MATERIALS )ver the years, great changes have taken place in package materials $n the earlier days, 0ood 0as the main material for packaging 'his slo0ly gave place to paper and

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paper boards 6o0, in addition to paper board, polythene carry bags %lastic and metaliEed polyester laminate materials are 0idely used for packaging 'hey also lend themselves to attractive printingFbranding on them Consumer products like 'ata 'ea, 6escafe, #alda, S0eets have all gone in for plastic package materials 'he rend generally is to0ards fle"ible packaging 0herever the products lend themselves to such packaging 'here are durable rubber containers tanks and drums made from high tenacity polyamide fabric matri" and coated 0ith compatible polymers 'hey also save transportation and handling cost considerably PACKAGING AEST9ETICS :ith the increasing need for enhancing the sales appeal of packaging, increased attention is no0 being given to package aesthetics Business firms are al0ays in search of ne0 package materials, designs, siEes and shapes that 0ill enhance the sales appeal of their products $t has become a common practice for marketers, especially in consumer product lines, to rely heavily on package aesthetics as a po0erful tool for sales appeal, brand identification and product differentiation $n some cases packaging also facilitates merchandising 'he package aesthetics plays the role of a 3silent salesmen& in pro*ecting the right image of the product %ackaging is a po0erful communication tool $t communicates a lot. the package provides the first appeal to the consumer 'he actual product comes only later $ts colour, its shape and siEe, its label and lettering, the brand name, the material used they all carry some communication Along 0ith package aesthetics, package siEe and convenience also contribute to the total product appeal !arlier, %ond&s Cold Cream 0as coming in a bottle,shaped container Subse8uently, %ond&s introduced the Cold Cream in a Candy tube 'he ne0 package changed the very concept of the product From a dressing,table item, is also

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become a carry,long product 9arpic li8uid toilet cleaner is another product that has successfully e"ploited the concept of consumer convenience in packaging 'he container, fitted 0ith a noEEle for cleaning the toilet, given 9arpic an advantage over other similar products %roviding small unit package is also a method of going 0ith customer preference and convenience 'ooth paste, Shampoo and Coconut oil are all available no0 in small 8uantities and sachets 'he use of sachets gained popularity for inducing product trials and for the convenience of fre8uent travelers $n shampoo, brands like 3Sunsilk& and 3Clinic %lus& have gained a lot of penetration in the rural markets through sachets 'he lo0 unit price of sachets makes them affordable even to the lo0er end of he market and helps in trial and adoption %roviding reusable container in another 0ay of enhancing product appeal 36escafe&, comes in a glass *ar 0hich could be later be used as a glass 3Bournvita& and 39orlicks& introduced < kg handle *ar 0hich 0as much sought by the consumers (efill packaging is also related to consumer convenience and economy Several products like Bru, Bournvita, 9orlicks, %arachute, Coconut oil are not coming refill packs 'he refill packs are sold at a slightly lo0er price than the regular package and that itself serves as a sales promotion effort $E+ELOPING PACKAGING #eveloping an effective package for a ne0 products re8uires a large number of decisions 'he first task is to establish the 3packaging concept& 'he packaging concept is a definition of 0hat the package should basically be or do for the particular product #ecisions must be made on further elements of package design siEe, shape,

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materials, colour, te"t and brand mark After the packaging is designed, it must be put through a number of tests 3!ngineering tests& are conducted to ensure that the package stands up under normal conditions, 37isual tests& to ensure that the script is legible and the colour harmonious. 3#ealer tests& to ensure that dealers find the packages attractive and easy to handle, and 3Consumer tests& to ensure favourable consumer response Marketers must grasp through systematic research, consumer preferences on the one hand and the cost and availability aspects on the other and provide the consumers 0ith the best possible packaging 'hey should also remember that any change in packaging must be handled carefully Firms must pay attention, ho0ever, to the gro0ing societal concerns about pollution caused by packing materials and make decisions that serve society&s interest as 0ell as immediate customer and company ob*ectives LA5ELING +abel s a small slip placed on or near the product to denote its nature, contents, o0nership etc $t may range from simple tags attached to products to comple" graphics that are part of the package +abel perform several functions: 'he label helps identify the product or brand 'he label might describe several things about the product 0ho made it, 0here 0as made, 0hen it 0as made, its contents, ho0 t is to be used and ho0 to use it safety etc $t might promote the product through its attractive design KIN$S O1 LA5ELS

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Brand "abels: 'hese labels are e"clusively meant for populariEing the brand name of the product, !"ample: Soaps, Cigarettes

-rade "abels: these label give emphasis to standards or grades, !"ample: #ust tea, Cloth etc

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.escri'tive "abels: the labels 0hich are descriptive in nature are called descriptive labels 'hey describe product features, contents, method of using it etc !"ample: Milk, food products and medicines

!romotional "abels: 'hese labels aim at attaching the attention, arousing desire and creating among the consumers to buy the product

'he marketers should make sure that their labels contain all the re8uired information before launching the product PRO$UCT-SUPPORT SER+ICES Customer service is another element of product strategy More and more companies are using product,support services as a ma*or tool in gaining competitive advantage -ood customer service is good for business $t costs less to keep the good0ill of e"isting customers that it does to attract ne0 customers or 0oo back lost customers Firms that provide high,8uality service usually outperform their less service,oriented competitors A study comparing he performance of businesses that had high and lo0 customer ratings of service 8uality found that the high,service businesses managed to charge more, gro0 faster, and make more profit Clearly, marketers need to thing carefully about their service strategies A company should design its product and support services to meet the needs to target customer 'he first step in deciding 0hich product,support services to offer is to

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determine both the services valued by target consumers and the relative importance of these Secondly, the companies has to design the product that rarely break do0n and are easily fle"ible 0ith little service e"pense -iven the importance of customer service as a marketing tool, may companies have set up strong customer service operation to handle complaints and ad*ustments, credit service, maintenance service, technical service and consumer informationM An active customer service operation coordinates all the company&s services, creates consumer satisfaction and loyalty, and helps the company to further set itself apart from competitors

RE+IE& 7UESTIONS8 < = > :hat is brandingM :hat are the reasons for brandingM :hat do you understand by 3brand e8uity&M :hat re the functions of packagingM :hat are the ma*or decision areas in packagingM ? :hat is labelingM :hat are the usual contents of lebelingM IIIIIIIIII

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LESSON 6 12 PRICING $ECISIONS


Learning Obje !i"e# After reading this lesson, you should be able to understand, 'he meaning for pricing and factors affecting pricing, 'he various pricing ob*ectives. #ifferent pricing methods. 'he pricing of ne0 pro*ect

Among the different components of the marketing,mi", price plays an important role to bring about product,market integration %rice is the only element in the marketing,mi" that products revenue $n the narro0est sense, price is the amount of money charges for a product or service More broadly, price is the sum of all the values that customer e"change for the benefits of having or using the product or service %rice may be defined as the value of product attributes e"pressed in monetary terms 0hich a customer pays or is e"pected to pay in e"change and anticipation of the e"pected or offered utility %ricing helps to establish mutually advantageous economic relationship and facilities the transfer of o0nership of goods and services from the company to buyers 'he managerial tasks involved in product pricing include establishing the

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pricing ob*ectives, identifying the price governing factors, ascertaining their relevance and relative importance, determining product value in monetary terms and formulation of price policies and strategies 'hus, pricing play a far greater role in the marketing,mi" of a company and significantly contributes to the effectiveness and success of the marketing strategy and success of the firm

1ACTORS IN1LUENCING PRICING %rice is influenced by both internal and e"ternal factors $n each of these categories some may be econoGmic factors and some psychological factors. again, some factors may be 8uantitative and yet others 8ualitative In!erna, 1a !(r# in-,*en ing 3ri ing' Corporate and marketing ob*ectives of the firm 'he common ob *ectives are survival, current profit ma"imiEaitn, market,share leadership and product,8uality leadership 'he image sough by the firm through pricing 'he desirable market positioning of the firm 'he characteristics of the product %rice elasticity of demand of the product 'he satge of the product on the product life cycle 'urn around rate of the product Costs of manufacturing and marketing

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%roduct differentiation practiced by the firm )ther elements of marketing mi" of the firm and their interaction 0ith pricing Consumption of the product line of the firm

E.!erna, 1a !(r# In-,*en e# Pri ing Market characteristics Buyers behaviors in respect to the given product Bargaining po0er of the customer Bargaining po0er of the ma*or suppliers Competitor&s pricing policy -overnment controlsF regulation on pricing )ther relevant legal aspects Social considerations Jnderstanding, if any, reached 0ith price cartels

PRICING PROCE$URE 'he pricing procedure usually involves the follo0ing steps:

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1' $e"e,(3;en! (- In-(r;a!i(n 5a#e 'he first step in determining the basic price of a company&s product4s5 is to develop an ade8uate and up,to,date information base on 0hich price decisions can be based $t is composed of decision,inputs such as cost of production, consumer demand, industry, prices and practices, government regulations 2' E#!i;a!ing Sa,e# an) Pr(-i!# 9aving developed the information base, management should develop a profile of sales and profit at different price levels in order to ascertain the level assuring ma"imum sales and profits in a given set of situation :hen this information is matched against pricing ob*ectives, management gets the previe0 of the possible range of the achievement of ob*ectives through price component in the marketing, mi" 3' An!i i3a!i(n (- C(;3e!i!i"e Rea !i(n %ricing in the competitive environment necessitates anticipation of competitive reaction to the price being set 'he coGmpetition for company&s product4s5 may arise from similar products, close substitutes 'he competitor&s reaction may be violent or subdued or even none Similarly, the reaction may be instant or delay $n order to anticipate such a variety of reactions, it is necessary to collect information about competitors in respect of their production capacity, cost structure, market share and target consumers 4' S anning T/e In!erna, En"ir(n;en! Before determining the product price it is also necessary to scan and understand the internal environment of the company $n relation to price the important factors to be considered relate to the production capacity sanctioned, installed and used,

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the ease of e"pansion, contracting facilities, input supplies, and the state of labour relations All these factors influence pricing decisions 5' C(n#i)era!i(n (- Mar0e!ing-;i. C(;3(nen!# Another step in the pricing procedure is to consider the role of other components of the marketing,mi" and 0eigh them in relation to price $n respect of product the degree of perishability and shelf,life, shape the price and its structure. faster the perishability lo0er is likely to be the price 6' Se,e !i(n# (- Pri e P(,i ie# an) S!ra!egie# 'he ne"t important step in the pricing procedure is the selection of relevant pricing policies and strategies 'hese policies and strategies provide consistent guidelines and frame0ork for setting as 0ell as varying prices to suit specific market and customer needs >' Pri e $e!er;ina!i(n 9aving taken the above referred steps, management may no0 be poised for the task of price determination For determination of price, the management should consider the decisions inputs provided by the information base and develop minimum and ma"imum price levels 'hese prices should be matched against the pricing ob*ectives, competitive reactions, government regulations, marketing,mi" re8uirements and the pricing policing and strategies to arrive at a price 9o0ever, it is al0ays advisable to test the market validity of its price during test marketing to ascertain its match 0ith consumer e"pectations GENERAL PRICING APPROAC9ES Companies set prices by selecting a general pricing approach that includes one or more of the follo0ing three approaches:

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4<5 'he cost,based approach Cost,%lus %ricing Break,!ven Analysis and 'arget,%rofit %ricing

4=5 'he Buyer,based approach %erceive,7alue %ricing

4>5 'he Competition based approach -oing,(ate %ricing Sealed,Bid %ricing

1' C(#!-P,*# Pri ing 'his is the easiest and the most common method of price setting $n this method, a standard mark up is added to the cost of a product to arrive at its price For e"ample, the cost of manufacturing a fan is (s <GGGF, adds =@ per cent mark up and sets the price to the retailer at (s <=@GF, 'he retailer in turn, may mark it up to sell at (s <>@GF, 0hich is >@ per cent market up on cost 'he retailer&s gross margin in (s <@GGF, But this method is not logical as it ignores current demand and competition and is not likely to lead to the optimum price Still mark up price is 8uite popular for three reasons: i5 Seller have more certainty about costs than about demand and by tying the price to cost, they simplify their pricing task and need not fre8uently ad*ust price 0ith change in demand

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ii5

:here all firms in the industry use this pricing method, their prices 0ill similar and price competition 0ill be minimiEed to the benefit of al of them.

iii5

$t is usually felt by many people that cost plus pricing is fairer to buyers as 0ell as to seller

2' 5rea0-E"en Pri ing an) Targe!-Pr(-i! Pri ing An important cost,oriented pricing method is 0hat is called target,profit pricing under 0hich the company tries to determine the price that 0ould product the profit it 0ants to earn 'his pricing method uses the popular 3break,even analysis& According to it, price is determined 0ith the help of a break,even chart 'he break,even charge depicts the total cost and total revenue e"pected at different sales volume 'he break, even point on the chart if that 0hen the total revenue e8uals total cost and the seller neither makes a profit nor incurs any loss :ith the help of the break,even chart, a marketer can find out the sales volume that he has to achieve $n order to earn the targeted profit, as also the price that he has to charge for his product 5*2er-ba#e) A33r(a / Per ei"e-+a,*e Pri ing Many companies base their price on the products perceived value 'hey take buyer&s perception of value of a product, and not the seller&s cost, as the key to pricing As a result, pricing begins 0ith analyEing consumer needs and value perceptions, and price is set to match consumers& perceived value Such companies use the non,price variables in their marketing mi" to build up perceived value in the buyer&s minds, e g heavy advertising and promotion to enhance the value of a product in the minds of the buyers 'hen they set a high price

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to capture the perceived value 'he success of this pricing method depends on and determination of the market&s perception of the product&s value

C(;3e!i!i(n-ba#e) A33r(a / 1' G(ing Ra!e Pri ing Jnder this method, the company bases its prices largely on competitor&s prices paying less attention to its o0n costs or demand 'he company might charge the same prices as charged by its main competitors, or a slightly higher or lo0er price than that 'he smaller firms in an industry follo0 the leading firm in the industry and change their prices 0hen the market leader&s prices changes 'he marketer thinks that the going price reflects the collective 0isdom of the industry = Sealed,Bid %ricing 'his is a competitive oriented pricing, very common in contract businesses 0here firms bid for *obs Jnder it, a contractor bases his price on e"pectations of ho0 competitors 0ill price rather than on a strict relation to his cost or demand As the contractor 0ants to 0in the contract, he has to price the contract lo0er than the other contractors But a bidding firm cannot set its price belo0 costs $f it sets the price much higher than the cost, its chance of getting the contract 0ill be lesser

PRICING O5GECTI+ES A businesses firm 0ill have a number of pricing ob*ectives Some of them are primary. some of them are secondary. some of them are long,term 0hile others are short, term 9o0ever, all pricing ob*ectives emanate from the corporate and marketing

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ob*ectives of the firm Some of the pricing ob*ectives are discussed belo0: < = > ? @ %ricing for a target return %ricing for market penetration %ricing for market skimming #iscriminatory pricing StabiliEing pricing

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Pri ing -(r a !arge! re!*rn 'his is a common ob*ectives found 0ith most of the established business firms 9ere, the ob*ective is to earn a certain rate of (eturn )n $nvestment 4()$5 and the actual price policy is 0orked out to earn that rate of return 'he target is in terms of 3return on investment& 'here are companies 0hich set the target at, for e"ample, =GU return on investment after ta"es 'he target may be for a short,term or a long,term A firm also may have different targets for its different products but such targets are related to a single overall rate of return target

2' Pri ing -(r ;ar0e! 3ene!ra!i(n' :hen companies set a relatively 3lo0 price& on their ne0 product in initial stages hoping to attract a large number of buyers and 0in a large market,share it is called penetration pricing policy 'hey are more concerned about gro0th in sales than in profits 'heir main aim is capturing and to gain a strong foothold in the market 'his ob*ect can 0ork in a highly price sensitive market $t is also done

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0ith the presumption that unit cost 0ill decrease 0hen the level of sales reach a certain target Besides, the lo0er price may make competitors to stay our :hen market share increases considerably, the firm may gradually increase the price 3' Pri ing -(r ;ar0e! #0i;;ing' Many companies that launch a ne0 product set 3high prices& initially to skim the market 'hey set the highest price they can charge given the comparative benefits of their product and the available substitutes After the initial sales slo0 do0n, they lo0er the price to attract the ne"t price,sensitive layer of customer 4' $i# ri;ina!(r2 3ri ing Some companies may follo0 a differential or a discriminatory pricing policy, charging different prices for different customers or allo0ing different discounts to different buyers #iscrimination may be practices on the basis or product or place or time For e"ample, doctors may charge different fees for different patients. rail0ays charge different fares for usual passengers and regular passengersF students Manufacturers may offer 8uantity discounts or 8uote different list prices to bulk, buyers, institutional buyers and small buyers 5' S!abi,i<ing 3ri ing' 'he ob*ective of this pricing policy is to prevent fre8uent fluctuations in pricing and to fi" uniform or stable price for a reasonable period :hen price is revised, the ne0 price 0ill be allo0ed to remain for sufficiently a long period 'his pricing policy is adopted, for e"ample, by ne0spapers and magaEines NE& PRO$UCT PRICING

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%ricing a ne0 product is an art $t is one of the most important and daEEling marketing problems faced by a firm 'he introduction of a ne0 product may involve some problems in as much as there neither an established market for the product nor a demonstrated demand for it 'he firm may e"pect a substantial demand for the product though it is yet to be established !ven if there are some near substitutes the actual degree of substitution has to be estimated Again, there may be no reliable estimate of the direct costs of marketing and manufacturing the product Moreover, the cost patterns are likely to change 0ith greater kno0ledge and increasing volume of production 2et the basic pricing policy for a ne0 product is the same as for established product it must cover full in the long run and direct costs in the short run )f course, there is greater uncertainty aobut both the demand and costs of the product Apart from the problem of estimating the demand for an entirely ne0 product, certain other initial problems likely to be faced are: <5 #iscovering a competitive range of price =5 $nvestigating probable sales at several possible prices, and >5 Considering the possibility of relation from products substituted by itF $n addition, decisions have to be taken on market targets, design, the promotional strategy and the channels of distribution 'est marketing can be helpful in deciding the suitable pricing policy Jnder test marketing, the product is introduced in selected areas, often at different prices in deferent areas 'hese tests 0ill provide the management an idea of he amount and elasticity of the demand for the product, the competition it is likely to face, and the e"pected sales volume and profits simulation of full,scale production and distribution 2et it may provide very

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useful information for better planning of the full,scale effort $t also permits initial pricing mistakes to be made on small rather than on a large scale 'he ne"t important 8uestion is /0hether to charge high initial price or a lo0 penetration price1 A /ig/ Ini!ia, Pri e AS0i;;ing Pri eB A high initial price, together 0ith heavy promotional e"penditure, may be used to launch a ne0 product if conditions are appropriate For e"ample: 4a5 #emand is likely to be less price elastic in the early stages than later, since high prices are unlikely to deter pioneering consumers A ne0 product being a novelty commands a better price 4b5 $s the life of the products promises to be a short one, a high initial price helps in getting as much of it and as fast as possible 4c5 Such a policy can provide the basis for dividing the market into segments to differing elasticities Bound edition of a book is usually follo0ed by a paper back 4d5 A high initial price may be use?ful if a high degree of production skill is needed to make the product so that it is difficult and time consuming for competitors to enter on an economical basis 4e5 $t is a safe policy 0here elasticity is not kno0s and the product not yet accepted 9igh initial price may finance the heavy costs of introducing a ne0 product 0hen uncertainties block the usual sources of capital A L(4 Pene!ra!i(n Pri e $n certain conditions, it can be successful in e"panding market rapidly thereby obtaining larger sales volume and lo0er unit costs $t is appropriate 0here:

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4a5 there is high short,run price elasticity. 4b5 there are substantial cost savings from volume production. 4c5 the product is acceptable to the mass of consumers. 4d5 there is no strong patent protection. and 4e5 there is a threat of potential competition so that a big share of the market must be captured 8uickly 'he obv*ective of lo0 penetratio*n price is to raise barriers against the entry of prospective competitors Stay,out pricing is appropriate: i5 0here are total demand is e"pected to be small $f the most efficient siEe of the plant is big enough to supply a ma*or portion of the demand, a lo0,price policy can capture the bulk of the market and successfully hold back lo0,cost competition ii5 :hen potential of sales appears to be great, prices must be set as their long,run level $n such cases, the important potential competitor in a large multi,product firm for 0hom the product in 8uestion is probably marginal 'hey are normally confident that they can get their costs do0n to competitor&s level if the volume of product is large PRO$UCT-MI@ PRICING STRATEGIES 'he strategy for setting a pro*ect&s price often has to be changed 0hen the product is apart of a product mi" $n this case, the firm looks for a set of prices that ma"imiEes the profits on the total product mi" %ricing is difficult because the various products have related demand and costs and face different degrees of completion

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Pr()* !-;i. Pri ing Si!*a!i(n# Pr()* ! Line Pri ing Companies usually develop product lines rather than single products $n product line pricing, management must decide on the price steps to be set bet0een the various products in a line 'he price steps should take into account cost differences bet0een the products in the line, customer evaluations of their different features, and competitor&s prices if the price difference bet0een t0o successive products is small, buyers usually 0ill buy the more advanced product 'his 0ill increase company profits if the cost difference is smaller that the price difference $f the price difference is large, ho0ever, customers 0ill generally buy the less advanced products O3!i(na,-Pr()* ! Pri ing Many companies use optional,product pricing offering to sell optional or accessory products along 0ith their main product For e"ample, a car buyer may choose to order po0er 0ido0s, central locking system, and 0ith a C# player %ricing these options is a sticky problem Automobile companies have to decide 0hich items to include in the base price and 0hich to offer as options 'he economy model 0as stripped of so many comforts and conveniences that most buyers re*ected it More recently, ho0ever, -eneral Motors has follo0ed the e"ample of he Papanese auto makers and included in the sticker price many useful items previously sold only as options 'he advertised price no0 often represents a 0ell,e8uipped car Ca3!i"e-Pr()* ! Pri ing8 Companies that make products that must be used along 0ith a man product are

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using captive,product pricing !"amples of captive products are raEor blades, camera film, and computer soft0are %roducers of the main products 4raEors, cameras, and computers5 often price them lo0 and set high markups on the supplies 'hus, ;odak prices its cameras lo0 because it makes its money on the film it sells $n the case of services, this strategy is called two$part pricing. 'he price of the service is broken into a fi-ed fee plus a variable usage rate. 'hus, a telephone company charges a monthly rate the fi"ed fee plus charges for calls beyond some minimum number the variable usage rate 'he service firm must decide ho0 much to charge for the basic service and ho0 much for the variable usage 'he fi"ed amount should be lo0 enough to induce usage of the service, and profit can be made on the variable fees 52-Pr()* ! Pri ing8 $n producing petroleum products, chemicals and other products, there are often by,products $f the by,products have not value and if getting rid of them is costly, this 0ill affect the pricing of the main product Jsing by,product pricing, the manufacturer 0ill seek a market for these by,products and should accept any price that covers more than the cost of storing and delivering them 'his practice allo0s the seller to reduce the main product&s price to make it more competitive By products can even turn out to be profitable Pr()* !-5*n),e Pri ing8 Jsing product,bundle pricing, sellers often combine several of their products and offer the bundle at a reduced price 'hus computer makers include attractive soft0are packages 0ith their personal computers %rice bundling can promote the sales of products consumers might not other0ise buy, but the combined price must be lo0 enough to get them to buy the bundle PRICE-A$GUSTMENT STRATEGIES

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Companies usually ad*ust their basic price for various customer differences and changing situations T23e# (- Pri e-A)j*#!;en! S!ra!egie# 4<5 .iscount and %llowance Pricing: (educing prices to re0ard customer response such as paying early or promoting the product 4=5 *egment Pricing: Ad*ustment prices to allo0 for differnecs in customers, product, or locating 4>5 Psychological Pricing: Ad*usting prices for psychological effort 4?5 Promotional Pricing: 'emporarily reducing prices to increase short,run sales 4@5 0alue Pricing: Ad*usting prices to offer the right combination of 8uality and service at a fair price 4A5 "eographical Pricing: Ad*usting prices to account for the geographic location of customers 4B5 International Pricing: Ad*ustment prices for international markets $i# (*n! an) A,,(4an e Pri ing8 Most companies ad*ust their basic price to re0ard customers for certain responses, such as early payment of bills, volume purchases and off,season buying 'hese price ad*ustments called discounts and allo0ances can take many forms A cash discount is a price reduction to buyers 0ho pay their bills promptly A 3uantity discount is a price reductions to buyers 0ho buy large volumes A seasonal discount is a price reduction to buyers 0ho buy merchandise or services out of season A trade discount is offered byt eh seller to trade channel members 0ho perform

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certain functions, such as selling, storing and record,keeping Manufacturers may offer different functional discounts to different trade channels because of the varying services they perform %llowances are another type of reduction from the list price 'rade allo0ance is given, for e"ample, or e"change offers Promotional allowances are payment or price reductions to re0ard dealers for participating in advertising and sales,support programs Seg;en!e) Pri ing Companies often ad*ust their basic prices to allo0 for differences in customers, products and locations $n segmented pricing, the company sells a product or service at t0o or more prices, even though the difference in prices is not based on differences in costs Segmented pricing takes several forms Customer$segment pricing : #ifferent customers pay different prices for the same product or service (ail0ays, for e"ample, charge a concessional fare to children and senior citiEens Product$form pricing: #ifferent version of the product are period differently, but not according to differences in their costs 1ocation pricing: #ifferent locations are priced differently, even though the cost of offering each location is the same For instance, theaters vary their seat prices because of audience preferences for certain locations, and state universities charge high tuition fee for foreign students 'ime pricing: %rices vary by the season, the month, the day, and even the hour %ublic utilities vary their prices to commercial users by time of day and 0eekend versus 0eekday 'he telephone company offers lo0er /off,peak1 charges P#2 /(,(gi a, Pri ing8

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%rice says something about the product For e"ample, many consumers use price to *udge 8uality $n using psychological pricing, sellers consider the psychology of prices and not simply the economics For e"ample, one study of the relationship bet0een price and 8uality perceptions of cards found that consumers perceive higher,priced card as having higher 8uality By the same token, higher 8uality cars are perceived to be even higher priced than they actually are Another aspect of psychological pricing is reference prices prices that buyers carry in their minds and refer to 0hen looking at a given product 'he reference price might be formed by noting current prices, remembering past prices, or assessing the buying situation Sellers can influence of use these consumers& reference prices 0hen setting price For e"ample, a company could display its product ne"t to more e"pensive ones in order to imply that it belongs in the same class Pr(;(!i(na, Pri ing8 :ith promotional pricing, companies 0ill temporarily price their products belo0 list price and sometimes even belo0 cost %romotional pricing takes several forms Supermarkets and departments stores 0ill price a fe0 products as loss leaders to attach customers to the store in the hope that they 0ill buy other items at normal markups Sellers 0ill also use special event pricing in certain seasons to dra0 more customers +a,*e Pri ing Marketers adopt value pricing strategies offering *ust the right combination to 8uality and good service at a fair price $n many cases, this has involved the introduction of less e"pensive versions of established, brand name products Ge(gra3/i a, Pri ing A company must also decide ho0 to price its products to customers locate in

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different parts of the country or 0orld 'here are five geographical pricing strategies <5 &+ Pricing: 'his means the goods are placed free on board a carrier =5 4niform .elivered Pricing: 'he Company charges the same price plus freight to all customers, regardless of their location >5 5one Pricing: All customers 0ithin a given Eone pay a single total price. the more distant the Eone, the higher the price ?5 asing$point pricing: 'he seller selects a given city as a /basing point1 and charges all customers the freight cost from that city to the customer location, regardless of the city from 0hich the goods actually are shipped @5 &reight$absorption Pricing: 'he sellers absorbs all or part of the actual freight charges in order to get the desired business In!erna!i(na, Pri ing8 Companies that market their products internationally must decide 0hat prices to charge in the different countries in 0hich they operate $n some cases, a company can set a uniform 0orld0ide price A$MINISTERE$ PRICE $n real live business situations, product price is nto determined as envisaged in the price theory, but is administered by the company&s management An administered or administrative price is set by a company official in contrast to the competitive market prices described in theory Administered price may, therefore, be defined as the price resulting from managerial decisions of the company From this, the follo0ing characteristics of the administrated price emerge: 4<5 %rice determination is a conscious and deliberate administrative action rather

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than a result of the demand and supply interaction 4=5 Administered price is fi"ed for a period of time or for a series of sale transactions. it does not fre8uently change 4>5 'his price is usually not sub*ect to negotiation. price structure incorporating differentiation. price structure incorporating different variations may, ho0ever, be developed to meet specific consumer needs 'he administrative price is set by management after considering all relevant factors impinging on it, viE, cost, demand and competitors& reactions Since all companies set administrative prices on more or less identical considerations, the prices in respect of similar products available in the market tend to be uniform 'he competition, therefore, is based on non,price differentiation through branding, packaging and advertising, etc $t is 0ith this administrative price that marketers are concerned 0ith and, as natural corollary, our 0on concern throughout the subse8uent pages 0ill be 0ith the administrative price REGULATE$ PRICE 'he concept of administrative price may possibly impart a notion that a company is free to fi" 0hatever price if deems fit and buyer have but one choice either to buy or not to buy But in real life situation it is not like this For fear of damages to consumer and national interests, administered prices are sub*ect to state regulation 'herefore, 0henever the administered price is et and managed 0ithin the state regulation it is termed as regulated price $t may assume t0o forms First, the price may be set by some State agency, say, the Bureau of $ndustrial Cost a and %rices or the 'ariff Commission and the company *ust accepts it as given Second, the price may be set by a company 0ithin the frame0ork or on the basis of the formula given by the State $n $ndia companies, for e"ample, the fertiliEer, aluminium and steel industries sell their products at prices fi"ed by the government, 0hile companies, for e"ample, the cotton te"tile industry sell

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products at the price fi"ed on the basis of a given formula $n conclusion, it may be said that in the real life $ndian business situation it is the 3regulated administrative price& that is relevant for companies and at 0hich products are offered for sale to target consumers PRICING O+ER T9E PRO$UCT LI1E C:CLE 'he price policy can be considered in terms of product life cycle A ne0 product, 0ith no competitors has an advantage, and therefore, market skimming policy may be applied 'his policy is aimed at getting the 3cream& of the market 4the top of the demand curve5 at a high before catering to the more price,sensitive segments of the market $n the initial stages the skimming policy can be useful for getting a better understanding of the e"tent of demand or consumer response as 0ell as to earn ade8uately to cover the product development costs 'he policy may then lead to slo0 reduction of the price 0ith a vie0 to e"pand the market For the ne0 company 4as compared 0ith the ne0 product5 producting a product in the maturity stage, the preferred ob*ect 0ould be penetration pricing the opposite of skimming 'his is unavoidable 0hen the 0hole demand is elastic and the ne0 entrant company&s first aim is to gain entry, a standing or recognition in the market even at a loss for a short period 'his policy may also be applied for ne0 product, if the firms e"pects serious competition very soon after introduction Finally, it may be said 3there is not 0ay in 0hich the various factors analyEed earlier can be fed into a computing machine to determine the 3right& price $ndividual factors assume varying importance at different times Basically it is the *udgment of the price marker 0hich is the catalytic agent that fuses these various factors into a final decision concerning price %ricing is an art, not a science 'he 3feel& of the market of the price market is far more significant than his adeptness 0ith a calculating machine GO+ERNMENT CONTROL ON PRICING

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%rice controls refer to the -overnmental regulations in respect of price fi"ation Jsually statutory price control entails imposition of price ceiling so that it does nto e"ceeds consumer capacity to pay Currently for e"ample, the price of petrol in under statutory price controls 'he firs manufacturing these products are assured retention prices 0hich are based on costs, and ensure fair return on investment $n case of sugar, a dual pricing system has been introduced Jnder this system, a manufacturer is re8uired to compulsorily sell a part of its production to the -overnment at substantially lo0 prices, called levy price 'he rest of production may be sold in the open market as a price the firm deems fit 'he statutory price control also envisages the announcement of 3support price& for certain agricultural products like cotton, food grains etc, so as to protect cultivators from price flunctuation 7oluntary price control envisages formulation of price control measures by the respective industry association under the direction of and according to the guidelines by the -overnment

Re"ie4 7*e#!i(n#8 < = > :hat are the factors affecting pricingM #iscuss the various pricing ob*ectives :hat are the methods of pricing the ne0 productsM

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+esson <> Channel #ecisions +earning )b*ectives After reading this lesson, you should be able to understand 'he types and functions of the marketing intermediaries. 'he factors affecting the choice of distribution channels. 'he channels conflict and cooperation. 'he channel design decision. %hysical distribution and logistics management. (etailing establishment.

Channels of #istribution are the most po0erful element among marketing mi" elements 'he main function of this element is to find out appropriate 0ays through 0hich goods are made available to the market $t is a managerial function and hence proper decisions are to be taken in this matter :hen the product is finally ready for the market, it has to be determined 0hat methods and routes 0ill be used to bring the product to the market, i e to ultimate consumers and industrial users 'his process involves establishing distribution and providing for physical handling a distribution #istribution is concerned 0ith various activities involved in the transfer of o0nership from the producer to the consumer

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A channel of distribution for a product is the route taken by the goods as they move from the organisation to the ultimate consumer or user

$E1INITION Cundiff ! : and Still ( S define a marketing channel as /a path traced in the direct or indirect transfer of title to a product, as it move from a producer to ultimate consumes or industrial users1 According to American Marketing Association, /A channel of distribution, or marketing channel is the structure of intra,company organisation units and e"tra,company agents and dealers 0holesale and retail, through 0hich a commodity, product or service is marketed 1 %hilip ;otler difines a marketing channel as /the set of firms and individuals, that take title, or assist in transferring title, to the particular goods or services as it moves from the producer to the consumers 1 A distribution channel is /a set of interdependent organiEations involved in the process of making a product or service available for use ro consumption by the consumer of business user 1 'hus, it may be noted that every marketing channel contains one or more of the 3transfer points& at each of 0hich there is either an institution or a final buyer of the product From the vie0 point of the producer, such a net0ork of institutions used for reaching a market is kno0n as a marketing channel A channel al0ays includes both the producer and the final customer of the product, as 0ell as agents and middlemen involved in the transfer of title 9o0ever, the channel does not include firms such a bank, rail0ays and other

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institutions 0hich render a marketing service, but play no ma*or role in purchase and sales $f a consumer buys rice from the cultivator, or if the publisher sells a book by main direct to a lecturer, the channel is from producer to consumer )n the other hand, if the publisher sells books to booksellers 0ho in turn sell to the students and teachers are channel is from producer,retailer,consumer C9ANNEL 1UNCTIONS 'he primary purpose of a distributive channel is to bridge the gap bet0een producers and users by removing differences bet0een supply and demand For this, certain essential functions need to be performed 'hey are: < Information: gathering and distributing marketing research and intelligence information about actors and forces in the marketing environment needed for planning and aiding e"change = > ? Promotion: developing and spreading persuasive communications about an offer Contact: finding and communicating 0ith prospective buyers Matching: shaping and fitting the offer to the buyer&s needs, including such activities as manufacturing, grading, assembling and packaging @ /egotiation: reaching an agreement on price and other terms of the offer so that o0nership or possession can be transferred )thers help to fulfill the completed transactions A B C Physical distribution: transporting an storing goods &inancing: ac8uiring and using funds to cover the costs of the channel 0ork !isk taking: assuming the risks of carrying our the channel 0ork

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'he importance of these functions varies depending upon the nature of the goods themselves For e"ample: transportation and storage tend to predominate in the case of bulky ra0 materials such as coal, petroleum products and iron one, 0here price and specification are standardiEed and the market comprises a limited number of buyers and sellers As the comple"ity of the product increases, the provision of information and product service becomes predominant. for e"ample, computers, automobiles etc 'herefore, it is necessary to consider the precise nature of the product and the seller,buyer relationship to determine their relative importance MAGOR C9ANNELS O1 $ISTRI5UTIONS 'here are a number of channels of distribution available to the producer 0hich may be employed by him to bring his products to the market $i#!rib*!i(n (- C(n#*;er G(()# Consumer goods may be distributed generally through various channels 'he channels used are: i5 ii5 iii5 iv5 %roducer to Consumer %roducer,(etailer,Consumer %roducer,:holesaler,(etailer,Consumer %roducer,:holesaler,Pobber,(etailer,Consumer

$i#!rib*!i(n (- In)*#!ria, G(()# $ndustrial goods are distributed by manufacturer, through four important channels,

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although he may also use his sales brand or sales office for the purpose i5 Producer$Industrial 4ser: 'hrough this direct channel are sold, large installations like generators, plants etc to users ii5 Producer$Industrial distributor$4ser: 'hrough this channel are sold operating supplies and small accessory e8uipment, such as building material, construction e8uipment, air,conditioning e8uipment iii5 Producer$%gent$ 4ser: 'his channel is often used 0hen a ne0 product is introduced, or a ne0 market is entered iv6 Producer$%gent$Industrial distributor$4ser

1ACTORS A11ECTING T9E C9ANNELS O1 $ISTRI5UTION A large number of channels of distribution are available to the manufacturer for bringing his product to the ultimate consumer From this vast number of potential distribution arrangements, the marketing e"ecutive must screen those that may be appropriate for distribution of the product at least e"pense per unit of merchandise and 0hich secure the desired volume of sales !fficient distribution at the least cost and attaining the desired volume of sale can be secured only after e"perience, study and analysis 'he notice of the product, its unit value, its technical features, its degree of differentiation from competitive products etc , are the factors 0hich may limit the number of potential channel alternatives 'he best channel is one that 0orks best in the marketing strategy selected by the company 'he channel chosen should achieve ideal market e"posure and should meet target customer&s needs and preferences 'he channel choice is influenced by,

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#istribution %olicy %roduct Characteristics Supply Characteristics Customer Characteristics Middlemen Characteristics Company Characteristics !nvironmental Characteristics Cost of Channel

$i#!rib*!i(n P(,i 2 A firm&s distribution policy may be of intensive distribution selective distribution or e"clusive distribution $ntensive distribution refers to ma"imum distribution though every possible type of outlet 'his policy re8uires the use of more thant one channel to reach the target market 0ith many intermediaries Selective distribution is the sale of product through only those outlets 0hich 0ill be able to sell more products !"clusive distribution involves granting of e"clusive rights to the channel member to distribute the products 'hus the distribution policy of the firm decides the choice of a channel Pr()* ! C/ara !eri#!i #

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'he product Characteristics such as the use of the product, its fre8uency of purpose, perishability, value, the service re8uired etc decide the channel For e"ample, perishable products re8uire more direct marketing. convenience goods such as soaps, match bo" 0hich are fre8uently purchased and lo0 unit value re8uire long channel Shopping goods such as refrigerator re8uire selective channel S*33,2 C/ara !eri#!i # Small number of producers, geographically concentrated use short channel $f the number of products are large, and geographically dispersed, they use long channel C*#!(;er C/ara !eri#!i # Customer characteristics such as their number, geographical dispersion, fre8uency and regularity of purchase greatly influence the channel selection Mi)),e;en C/ara !eri#!i # 'he choice of channel is also depends on the strengths and 0eaknesses of various types of middlemen performing various marketing functions 'heir behavioural differences, product lines, the number and locations affect the choice of the channel C(;3an2 C/ara !eri#!i # 'he choice of channel is also influenced by company charachericsits such as its financial position, siEe, product mi", past channel e"perience etc 'he company marketing policies such as speedy delivery, after,sales services etc also influence the choice of channels En"ir(n;en!a, /ara !eri#!i # !nvironmental characteristics such as economic conditions and la0 also influence

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the channel selection For e"ample, 0hen economic conditions are depressed the products prefer shorter channels to reduce cost C(#! (- C/anne, As each channel 0ill be doing some of the marketing functions, the cost of performing such marketing functions at each distribution level and the total cost of performing the entire marketing task has an influence in the choice of the channel 'hose channels 0hich ensure efficient distribution at least e"pense and 0hich secure the desired volume of sales should be chosen 1UNCTIONS O1 MI$$LEMEN 'he middlemen mainly, not sell to ultimate consumers& Ser"i e# Ren)ere) b2 !/e &/(,e#a,er !( !/e Man*-a !*rer# < = Securing orders from large number of retailers (educing the manufacturer&s need for carrying large stocks and incurring 0arehousing e"penses > ? @ A B Saving the manufacturer from the risk of credit sales 0ith numerous customers %articipation in sales promotion and advertising tasks of the manufacturers Acting as the interpreter of consumer needs and opinions 9elping the manufacturers for continuous production 'aking over the marketing functions from the manufacturer, thus enabling him to concentrate on production comprised of 0holesalers and retailers 'he 0ord

30holesaler& means 3to market goods in relatively larger 8uantities and 0ho usually does

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Ser"i e !( !/e Re!ai,er# < = > (elieving the retailers to hold large stocks %rompt delivery of goods to the retailers 'he 0holesaler 0ho specialists in one line of goods can offer better advise to the retailer regarding the 8uality of goods ? @ A -rant credit to the retailers $nforming and influencing the retailers to buy ne0 products Sharing the risk involved in marketing

Re!ai,er (etailer is the last link in the channel of distribution 9e sells the commodities to the ultimate customer As an intermediary bet0een the manufacturerF 0holesaler and the consumer he is performing the follo0ing services < = > ? @ 9e makes available 0ide assortment of goods to give consumers 9e keeps ready stock to meet the day to day demands of the customers 9e brings ne0 products and ne0 varieties to the consumers 9e offers e"pert advice to the consumers regarding suitability of product 9e is able to ascertain first hand needs and re8uirements and reactions of consumers A B 9e undertakes sales promotion activities 9e e"tends credit facilities

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9e maintain personal contact 0ith consumers and e"ercises considerable influence on their buying decisions

E,i;ina!i(n (- Mi)),e;en Middlemen are use by the manufacturers because they can perform the market functions more economically and more effectively than the manufacturer as a give cost Further the manufacturer does not have the ability to perform those functions and or because he does not posses ade8uate financial resources to perform them defectively !ven those producers 0ho have re8uired financial resources to sell directly to final consumers often can earn a greater return by increasing their investment in other aspects of business 'he element of risk also arises here #irect selling involves o0ning 0arehouses, delivery e8uipments and sales personnel 'hese involve fi"ed costs and increase the risk But if middlemen are used, these risks are borne by the middlemen 'hese middlemen by virtue of their specialiEation and e"perience may do the *ob better than the producer $t is a 0rong notion to believe that goods are marketed cheaply 0here middlemen are not used 'he elimination of middlemen does not mean the elimination of the marketing functions 'he functions are to be performed and the issue is 0ho should perform it is largely one of relative efficiency and effectiveness 'herefore, one of the reasons the producer does not choose to perform a number of specific marketing functions is that the middlemen through their specialiEation may perform it at less cost 9ence it is not possible to eliminate the middlemen from the channel and it is 0rong to blame them as parasites on the society by pointing to the difference bet0een the final price and the producers& price $t is only 0hen the middlemen take advantage of shortage and consumer ignorance and e"ploit them. they can be termed as parasites

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C9ANNEL MANAGEMENT
C9ANNEL 5E9A+IOURS AN$ ORGANISATOIN A distribution channel consists of firms that have banded together for their

common good !ach channel member plays a role in the channel and specialiEes in performing one or more functions $deally, because the success individual channel members depends on overall channel success, all channel firms should 0ork together smoothly 'hey should understand and accept their roles, coordinate their goals and activities, and cooperate to attain overall channels goals By cooperating, they can more effectively sense, serve and satisfy the target market 9o0ever, individual channel members rarely take such a broad vie0 'hey are usually more concerned 0ith their o0n short,run goals 'hey often disagree on the roles each should play on 0ho should do 0hat and for 0hat re0ards Such disagreements over goals and roles generate channel conflict. (ori)ontal conflict occurs among firms at the same level of the channel 0ertical conflict is even more common and refers to conflicts bet0een different levels of the same channel Some conflict in the channel takes the form of healthy competition Such competition can be good for the channel 0ithout it, the channel could become passive and non,innovative But sometimes conflict can damage the channel For the channel as a 0hole to perform 0ell, each channel member&s role must be specified and channel conflict must be managed Cooperation, role assignment and conflict management in the channel are attained through strong channel leadership CON1LICT MANAGEMENT STRATEGIES $n recent years ne0 types of channel organiEations have appeared that provide

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stronger leadership and improved performance

+er!i a, Mar0e!ing S2#!e;# A 7ertical Marketing System 47MS5 consists of producers, 0holesalers and retailers acting as a unified system )ne channel member o0ns the others, has contracts 0ith them and 0ields so much po0er that they all cooperate 'he 7MS can be dominated by the producer, 0holesaler or retailer 7ertical Marketing Systems came into being to control channel behaviour and manage channel conflict 'hey achieve economies through siEe, bargaining po0er and elimination of duplicated services 'here are three types of 7MS !ach type uses a different means for setting up leadership and po0er in the channel $n a corporate 7MS, coordination and conflict management are attained through common o0nership and different level of the channel $n a contractual 7MS, they are attained through contractual agreements among channel members $n an administrated 7MS, leadership is assumed by one or a fe0 dominant channel members 9(ri<(n!a, Mar0e!ing S2#!e; Another channel development is the 9oriEontal Marketing System, in 0hich t0o or more companies at one level *oin together to follo0 a ne0 marketing opportunity By 0orking together, companies can combine their capital, production capabilities or marketing resources to accomplish more than any one company could 0orking alone Companies might *oint forces 0ith competitors or non,competitors 0ith each other on a temporary basis 92bri) Mar0e!ing S2#!e; $n the past, many companies used a single channel to sell to a single market or 'hey might 0ork

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market segment

'oday, 0ith the proliferation customer segments and channel

possibilities, more and more companies have adopted multichannel distribution systems often called hybrid marketing channels Such multichannel marketing occurs 0hen a single firm sets up t0o or more marketing channels to reach one or more customer segments $BM provides a good e"ample of a company that users such a hybrid channel effectively For years, $BM sold computers only through its o0n sales force 9o0ever, 0hen the market for small, lo0,cost computers e"ploded, this single channel 0as no longer ade8uate 'o serve the diverse needs of the many segments of the computer market, $BM added <C ne0 channels in less than <G years 9ybrid channels offer many advantages to companies facing large and comple" markets :ith each ne0 channel, the company e"pands its sales and market coverage and gains opportunities to tailor its products and services to the specific needs to diverse customer segments But such hybrid channel systems are harder to control, and they generate conflicts as more channels compete for customers and sales $n some cases, the multichannel marketer&s channel are all under its o0nership and control Such arrangement eliminate conflict 0ith outside channels, but the marketer might fact internal conflict over ho0 much financial support each channel deserves C9ANNEL $ESIGN $ECISIONS #esigning a channel system calls for analyEing consumer service needs, setting the channel ob*ectives and constraints, identifying the ma*or channel alternative and evaluating them

Ana,2<ing C(n#*;er Ser"i e Nee)#

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+ike most marketing decisions, designing a channel begins 0ith the customer Marketing channels can be thought of as customer value delivery systems in 0hich each channel member adds value for the customer 'hus, designing the distribution channel starts 0ith finding out 0hat values consumers in various target segments 0ant from the channel #o consumers 0ant to buy from nearby locations or are they 0illing to travel to more distant centraliEed locationsM :ould they rather buy over the phone or through the mailM #o they 0ant immediate delivery or are they 0illing to 0aitM #o consumers value breadth of assortment or do they prefer specialiEationM #o consumers 0ant may add,on services 4deliver, credit, repairs installation5 or 0ill they obtain these else0hereM 'he more decentraliEed the channel, the faster the delivery, the greater the assortment period, and the more add,on services supplied, the greater the channel&s services level Se!!ing !/e C/anne, Obje !i"e# an) C(n#!rain!# Channel ob*ectives should be stated in terms of the desired services level of target consumers Jsually, a company can identify several segments 0anting different levels of channel services 'he company should decide 0hich segments to serve and the best channels to use in each case $n each segment, the company 0ants to minimiEe the total channel cost of meeting customer service re8uirements 'he company&s channel ob*ectives also are influenced by the nature of its

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products, company policies, marketing intermediaries, competitors and the environment I)en!i-2ing Maj(r A,!erna!i"e# :hen the company has defined its channel ob*ectives, it should ne"t identify its ma*or channel alternatives in terms of types of intermediaries, number of intermediaries and the responsibilities of each channel member E"a,*a!ing !/e Maj(r A,!erna!i"e# Suppose a company has identified several channel alternatives and 0ants to select the one that 0ill best satisfy its long,run ob*ectives 'he firm must evaluate each alternative against economic, control and adaptive criteria

C9ANNEL MANAGEMENT $ECISIONS )nce the company has revie0ed its channel alternatives and decided on the best channel design, it must implement and manage the chosen channel Channel management calls for selecting and motivating individual channel members and evaluating their performance over time Se,e !ing C/anne,# Me;ber# :hen selecting intermediaries, the company should determine 0hat

characteristics distinguish the better ones $t 0ill 0ant to evaluate the channel member&s years in business, other lines carried, gro0th and profit record, cooperativeness and reputation

M(!i"a!ing C/anne, Me;ber#

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)nce selected, channel members must be continuously motivated to do their best 'he company must sell not only through the intermediaries, but to them At ties the companies offer positive motivators such as higher margins, special deals, premiums, cooperative advertising allo0ances, display allo0ances, and sales contests At other times they sue negative motivators, such as threatening to reduce margins, to slo0 do0n delivery, or to end the relationship altogether E"a,*a!ing C/anne,# Me;ber# 'he producer must regularly check each channel member&s performance against standards such as sales average inventory levels, customer delivery time, treatment of damaged and lost goods, cooperation in company promotion and training programs, and services to the customer 'he company should recogniEe and re0ard intermediaries 0ho are performing 0ell 'hose 0ho are performing poorly should be helped or, as a last resort, replaced Finally, manufacturers need to be sensitive to their dealers 'hose 0ho treat their dealers lightly risk only losing their support but also causing some legal problems P9:SICAL $ISTRI5UTION AN$ LOGISTICS MANAGEMENT $n today&s global marketplace, selling a product is sometimes easier than getting it to customers Companies must decide on the best 0ay to store, handle, and mover their products and services so that are available to customer in the right assortments, at the right time, and in the right place +ogistics effectiveness 0ill have a ma*or impact on both customer satisfaction and company costs NATURE AN$ IMPORTANCE 'o some managers, physical distribution means only trucks and 0arehouses But modern logistics is much more than this %hysical distribution or marketing logistics

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involves planning, implementing and controlling the physical flo0 of materials, final goods and related information from points of origin to points of consumption to meet customer re8uirements at a profit 'he logistics manager&s tasks is to coordinate the 0hole,channel physical distribution system the activities of suppliers, purchasing agents, marketers, channel members and customers 'hese activities include forecasting, information systems, purchasing, production planning, order possessing, inventory, 0arehousing and transportation planning Companies today are placing greater emphasis on logistics for several reasons: <5 !ffective logistics is becoming a key to 0ining and keeping customers Companies are finding that they can attract more customers by giving better service or lo0er prices through better physical distribution =5 +ogistics is a ma*or cost element for most companies %oor physical distribution decisions result in high costs even large companies sometimes make too little use of modern decision tools for coordinating inventory levels. transportation modes, and plant, 0arehouse, and store locations $mprovements in physical distribution efficiency can yield tremendous cost savings for both the company and its customers >5 'he e"plosion in product variety has created a need for improved logistics management ?5 Finally, improvements in information technology have created opportunities for ma*or gains in distribution efficiency 'he increased use of computer, point,of, sale scanners, uniform product codes, satellite tracking, electronic data interchange 4!#$5 and electronic funds transfer 4!F'5 has allo0ed companies to create advanced systems for order processing, inventory control and handling, and

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transportation routing and scheduling GOALS O1 LOGISTICS S:STEMS 'he goal of the marketing logistics system should be to provide a targeted level of customer service at the least cost A company must first research the importance of various distribution services to its customers, and then set desired service levels for each segments MAGOR LOGISTICS 1UNCTIONS -iven a set of logistics ob*ectives, the company is ready to design a logistics system that 0ill minimiEe the cost of attaining these ob*ectives 'he ma*or logistics functions include order processing, warehousing, transportation. Or)er Pr( e##ing 'he orders once received, must be processed 8uickly and accurately 'he order processing system prepares invoices nd sends order information to those 0ho need it 'he appropriate 0arehouse receives instruction to pack and ship the ordered items Shipped itesm are accompanied by shipping and billing documents, 0ith copies going to various departments Both the company and its customers benefits 0hen the order,processing steps are carried out efficiently inventory management and

&are/(*#e !very company must store its goods 0hile they 0ait to be sole A storage function is needed because production and consumption cycles rarely match A company must

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decide on how many and what types of 0arehouse it needs, and where they 0ill be located 'he more 0arehouse the company uses, the more 8uickly goods can be delivered to customers 9o0ever, more locations mean higher 0arehousing costs 'he company, therefore, must balance the level of customer service against distribution costs

In"en!(r2 $nventory levels also affect customer satisfaction 'he ma*or problems to maintain the delicate balance bet0een carrying too much inventory and carrying too little Carrying too much inventory results in higher,than necessary inventory carrying costs and stock obsolescence Carrying too little may result in stock,outs, costly emergency shipments or production, and customer dissatisfaction $n making inventory decisions, management must balance that costs of carrying larger inventories against resulting sales and profit $nventory decisions involve kno0ing both when to order and how much to order $n deciding 0hen to order, the company balances the risks of running our of stock against the cost of carrying too much $n deciding ho0 much to order, the company needs to balance order,processing costs against inventory carrying costs +arger average,order siEe results in fe0er orders and lo0er order,processing costs, but it also means larger inventory carrying costs

Tran#3(r!a!i(n Marketers need to take an interest in their company&s transportation decisions 'he choice of transportation carries affects the pricing of products, delivery performance, and condition of the goods 0hen they arrive all of 0hich 0ill affect customer

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satisfaction 'he company can choose among five transportation modes: road, rail, sea, air and pipeline $n choosing a transportation mode for a product, senders consider as many as five criteria, viE speed, dependability, capability, availability and cost INTEGRATE$ LOGISTICS MANAGEMENT 'oday, more companies are adopting the concept of integrated logistics management. 'his concept recogniEes that providing better customer service and trimming distribution costs teamwork, both inside the company and among all the marketing channel organiEations $nside the company, the various functional departments must 0ork closely together to ma"imiEe the company&s o0n logistics performance 'he company must also integrate its logistics system 0ith those of its suppliers and customers to ma"imiEe the performance of the entire distribution system 'hus the goal of integrated logistics management is to harmoniEe all of the company&s distribution decisions

RETAILING ESTA5LIS9MENT )ver the years, 0e have seen a mushroom gro0th of retailing establishment !arlier, the retailers used to operate on a small scale 9o0ever, 0ith the enlargement of the scale of production, no0 several types of large,scale of production, no0 several types of large scale retailers have come into e"istence

9(*#e-!(-9(*#e Se,,ing 9ouse,to,9ouse selling is also kno0n as 39ome selling& or 3#oor,to,door selling& Jnder this method, salesperson directly meets the customers in their homes to

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promote the ne0 products and to populariEe e"isting products e"tensively as 0ell a intensively $t is fle"ible method and no fi"ed investment is involved for a retail store at a specific place $t is convenient method of buying to customers, in many cases after demonstration Mar0e!ing b2 Mai, Or)er Mail order marketing also kno0n as Mail )rder Business is one of the popular methods Jnder this method, the prospective consumers become a0are of the product through information furnished by the products through the print media or through broadcast or through direct mail $nterested consumers respond by placing order through mail to the suppliers 'he products are supplied to the consumer by mail and payment made either by 7%% or by che8ue A)"an!age# :ide market +o0er overhead e"penses Convenience for customers living in far,off places Small capital investment and lo0 risk 6o risk of bad debts Li;i!a!i(n# +ack of personal contact bet0een the seller and buyer 6o opportunity for customers to inspect goods 6o facility of credit purchase

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More time for e"ecuting orders Jnsuitable for products 0hich are not mailable

+en)ing Ma /ine# 7ending machines enables the producers to supply the products to the consumers through machine 0ithout employing salesmen Jsually products 0hich belong to the 3buy on impulse& category like soft drinks, ice creams, cigarette etc are marketed through this method In)e3en)en! S!(re# $mndependent stores are retail shops marketing the products to the consumes 'hey have the follo0ing advantages %ersonal relationship 0ith customers +ocation at convenient places to the customers -reater fle"ibility in 0orking Catering for more individualistic need %ersonal supervision %rompt and 8uick decisions Better services

$e3ar!;en! S!(re# A department store is defined as 3a retail institution that handles a 0ide variety of merchandise grouped into 0ell defined department for purposes of promotion, service,

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accounting and control& $t is capable of supplying all the re8uirements of the customer under a single roof Main features of department stores are: a5 A 0ide variety of goods: b5 #epartmental organisation. c5 +arge siEe. A)"an!age# CentraliEed location Availability of a 0ide range of goods in one location Convenience of shopping for consumers Being a large organisatoin it can get the economies of large,scale procurement $t can afford to have effective advertisement and can derive economies of large scale advertisement $f can offer better sales services $ra4ba 0# 9igh cost of doing business +imited personal attention to customers 6eed for higher capital 9igher mark,up in prices

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#ependence on hired employees

C/ain S!(re# (r M*,!i3,e S/(3# A chain store system consists of a number of retail stores 0hich sell similar products, are centrally o0ned and area operated under one management 'he various stores may be located in the various localities of a city or may be spread over a number of cities in the country Advantages to the Manufacturer or )0ner of the Chain +o0 operational e"penses +o0 cost of goods Jniformity in prices StandardiEed methods of operation Multiplication of selling points +o0 investments in inventory %ro"imity to customers A)"an!age# !( C*#!(;er# !asy accessibility !limination of middlemen&s profits Assured 8uality Jninterrupted supply

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#irect contact

$i#a)"an!age# %roblems relating to personnel and supervision $nfle"ibility in operations (ise in distribution cost +imited varieties

S*3er Mar0e! A supermarket is defined as 3a large retailing business unit 0ith 0ide variety and assortments, self,services and heavy emphasis on merchandise appeal& A)"an!age# Supermarket stocks a 0ide variety of assortments of goods %rice are normally lo0 $t operates on the principle of self,services $t is a lo0 cost retail institution Li;i!a!i(n# $t can operate in the area of concentration of buyers $t has to fact the problem of personnel and supervisions

RE+IE& 7UESTIONS

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< = >

:hat are the factors that decide the choice of a channelM 3Middlemen can be eliminated& #iscuss :hat do you understand by 3channel conflict&M 9o0 do you manage such conflictsM

? @

:hat are the factors that determine channel designM Bring out the nature and importance of physical distribution and marketing logistics

A B C D

State the ma*or logistics functions :hat are the services rendered by the 0holesalers and retailersM !valuate the merits and demerits of departments stores and chain stores :rite not on 4i5 automatic vending 4ii5 mail order business 4iii5 house,to,house selling

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+esson <? Advertising +earning )b*ectives After reading this lesson, you should be able to understand 'he components of promotional mi". 'he advertising ob*ectives, copy, budget, media and evaluation of effectiveness of advertisement 'he meaning and need for public relations 'he tools of public relations

'he main purpose of promotin is to attract customers and stimulate them to act in the desired manner 'he need for promotional activities has been recogniEed by the marketer for the follo0ing reasons: i5 'he physical separation of the consumers and producers and an increase in the number of potential customers ii5 $mproments in physical distribution facilities have e"panded the area limits of the markets iii5 Availability of a large number of 0holesaling and retailing middlemen in the market iv5 'o restore the demand for the e"isting product 0hen sale begin to decline

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A company&s promotional program called promotion mi-$ consists of the specific blend of advertising, personal selling and sales promotion MEANING 'he term 3advertising& originates from the +atin 0ord 3adverto&, 0hich means to 3turn around& Advertising, thus, denotes the means employed to dra0 attention to0ards any ob*ect or purpose $n the marketing conte"t, advertising has been defined as /an paid form of non,personal presentation and promotion of ideas, goods or services by an identified sponsor1 $t is a component of firm&s promotional mi" $t is a common techni8ue of mass selling %ublicity is different from advertising %ublicity is not normally paid for and sponsor could not be identified $t is not easily controlled by the firm Advertising can have both long,term and short,term ob*ectives O5GECTI+ES O1 A$+ERTISEMENT < 'o inform and influence the buyers to buy the product and thereby increase the sales = > ? @ 'o introduce a ne0 product to potential customers 'o influence the middlemen to store and handle the product $t helps build up brand image and brand loyalty to the products Advertising may be necessary to publiciEe the changes made in prices, channels of distribution, any improvement made in the 8uality, siEe, 0eight and packing of the product A $t may be issued, sometimes, to compete 0ith or neutraliEe competitor&s advertising B $t helps build up corporate image

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C D

$n the case of mail order business, advertising does the selling *ob by itself By supplementing personal selling, advertising makes the *ob of sales force easier

<G $t helps increase the effectiveness of sales promotion campaign << Finally, it encourages the creative arts and the artists $e i#i(n Area# in A)"er!i#ing 'he decision areas in advertising comprises of: < = > ? @ A B $dentifying the target audience #etermining the response sought #eciding the advertising ob*ectives #eciding the advertising budget #eciding on the advertisement copy #eciding the media !valuating the effectiveness of advertisement

I$ENTI1:ING TARGET AU$IENCE A marketing communicator starts 0ith a clear target audience in mind 'he audience may be potential buyers or current users, those 0ho make the buying decision or those 0ho influence it 'he audience may be individuals, groups, special publics or the general public 'he target audience 0ill heavily affect the communicator&s decisions on what 0ill be said, how it 0ill be said, when it 0ill be said, where it 0ill be said, and who 0ill say it

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$ETERMINING T9E RESPONSE SOUG9T 'he stages involved in purchase,processes are a0areness, knowledge, linking, preference, conviction or purchase. 'he target audience may be in any of the si" stages and the marketing communicator needs to kno0 0here the target audience no0 stands and to 0hat stage he needs to be moved 'his helps the marketer to develop a suitable promotional programmes $ECI$ING T9E A$+ERTISING O5GECTI+ES Advertising ob*ectives are essential because it helps the marketer kno0 in fkg*dfk*gdf that they 0ant to achieve and helps ensure effective development of fg*dsgdsf programems and guides and controls decision,making in each area fgdg* dfg*dkg*d*gdd d*kg*d $ECI$ING T9E A$+ERTISING 5U$GET #eciding ho0 much money to be spent on advertising is not an easy task 'he type of products involved the competitive structure of the industry, legal constraints, environmental conditions etc influence advertising e"penditure 'he decision cannot be taken a standard formula 'he ans0er varies from industry to industry and from company to company 0ithin the same industry 'he same company&s advertisement e"penditure may differ from time to time Me!/()# (- A)"er!i#ing 5*)ge! 4<5 Affordable method 4=5 Competitive parity method 4>5 %ercentage of sales method 4?5 )b*ective and task method

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A--(r)ab,e Me!/() 'his method as the name indicates rests on the principle that a firm 0ill allocate for 0hatever it can afford Jsually small firms follo0 this method !ven the limited funds provided for advertising may get reallocated for other items depending upon the emergent re8uirements C(;3e!i!i"e Pari!2 Me!/() Jnder this method, the firms make their advertising budget comparable to that of their competitors 'hey simply do 0hat others are doing Per en!age (n Sa,e# Me!/() Jnder this method, the advertising budget is set in terms of a specified percentage of past year sales anticipated 'he fact that different products brands at different stages of their life cycle 0ill re8uire varying levels advertisings support 0hich is not taken into account by this method Another limitation is that the level of sales determined the level of advertising budget but the actual 3functional relationship& 0ould seem to be reserve 9ence it is advisable that percentage of pro*ected sales be allocated rather than percentage of previous year&s sales Obje !i"e# an) Ta#0 Me!/() $n actual practice, marketers usually blend some of the 0ell accepted methods to afg*hk at a compromise budget 0hich is logical $n other 0ords, the budget decision is closely linked up 0ith the advertising ob*ectives, the media decisions and copy decisions 'hese four decisions areas in advertising interact among themselves and influence each other 'he decision,making is an integrated process, 0hich takes into account the total task of advertising to be performed

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$ECI$ING ON T9E A$+ERTISEMENT COP: 'he term 3copy& includes every single feature that appears in the body of advertisement such as the 0ritten matter, picture, logo, label, and designs #eveloping the copy is a creative process $t is an area 0here not rigid rules can be applied Some essential 8ualities that must be present in a good advertisement are that it must be able to 4i5 attract the attention of audience 4ii5 afggfsd interest 4iii5 create desire and 4iv5 stimulate the actions of buying 'his is kno0n as A$#A 4Attention, $nterest, #esire and Action5 Formulating the copy re8uires the consideration of the follo0ing: 4<5 Message content 0hat to sayM 4=5 Message structure ho0 to say it logicallyM 4>5 Message format ho0 to say it symbolicallyM 4?5 Message source 0ho should say itF Me##age C(n!en! 'he advertiser has to decide 30hat do say& to the target audience to produce the desired response 'he basis is 3advertising ob*ectives& #epending on the nature of the product and the target market, the message can have rational value, emotional value, moral value, educational value, attention value, humour value, etc Me##age S!r* !*re 'he structure deals 0ith the organisatoin and arrangement of the various elements of a message 'he communicator must decide ho0 to handle three message,structure issues 'he first is 0hether to dra0 a conclusion of leave it to the audience 'he

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advertiser is better off asking 8uestion and letting buyers come to their o0n conclusion 'he second message structure issue is 0hether to present a one,sided argument, or to t0o,sided argument Jsually one,sided arguments are more effective in sale presentations e"cept 0hen audiences are highly educated 'he third message,structure issue is 0hether to present the strongest arguments first or last 6ormally presenting them first gets strong attention Me##age 1(r;a! 'he marketing communicator also needs a strong format for the message $n a print advertisements, the communicator has to decide on the headlines, copy, illustration, and color 'o attract attention, advertisers can use novelty and contrast. eye,catching pictures and headlines. distinctive formats. message siEe and position. and color, shape and movement $f the message is to be carried over the radio, the communicator has to choose 0ords, sounds and voices $f the message is to be carried on television or in person, then all these elements plus body language have to be planned %resenters plan their facial e"pressions, gestures, dress, posture and hair style $f the message is carried on the product or its package, the communicator has to 0atch te"ture, scent, color, siEe, and shape Me##age S(*r e 'he source of the message has great deal of persuasive influence on the buyers 'he persuasive influence depends mainly on the credibility of the source Source factors such as a level of e"pertise, trust 0orthiness and likability usually decide the source&s credibility 0ith audience ,-pertise is the degree to 0hich the communicator has the authority to back the claim #octors, Scientists, and %rofessors rank high on e"pertise in their fields For e"ample, 0hen a doctor is seen to render a message about a paid reliever, the receiver of a message is tempted to accept it as

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authentic information 'rustworthiness is related to ho0 ob*ective and honest the source appears to be $f an audience perceives the source as sincere, honest and trust 0orthy, the source 0ill be effective in communicating the message 1ikability is ho0 attractive the source is to the audience. people like open humorous and natural sources 'he most highly credible source is a person 0ho source high on all three factors $ECI$ING ON ME$IA 'he communicator no0 must select channel of communication 'here are t0o broad types of communication channels personal and nonpersonal $n 'ersonal communication channels/ t0o or more people communicate directly 0ith each other 'hey might communicate face to face, over the telephone, or even through the mail %ersonal communication channels are effective because they allo0 for personal addressing and feedback Non'ersonal communication channels are media that carry messages 0ithout personal contract or feedback 'hey include ma*or media, atmosphere and events Ma*or media include print media 4ne0spapers, magaEines, direct mail5. broadcast media 4radio, television5. and display media 4billboards, signs, posters5 !vents are stages occurrences that communicate messages to target audiences For e"ample, public relations departments arrange press conferences, grand openings, sho0s and e"hibits, public tours and other events 1ACTORS TO 5E CONSI$ERE$ &9ILE C9OOSING ME$IA $e i)ing (n Rea /% 1reD*en 2 an) I;3a ! 'o select media, the advertiser must decide 0hat reach and fre8uency are needed to achieve advertising ob*ectives (each is a measure of the percentage of people in the target market 0ho are e"posed to the advertisement campaign during a given period of

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time &re3uency is a measure of ho0 many times the average person in the target market is e"posed to the message 'he advertiser also must decide on the desired media impact the 8ualitative value of a message e"posure through a given medium C/((#ing a;(ng Maj(r Me)ia T23e# Media planners consider many factors 0hen making their media choices 'he media habits of target consumers 0ill affect media choice for e"ample, radio and television are the best media for reaching teenagers So 0ill the nature of the product 2 fashions are best advertised in color magaEines, and %olaroid cameras are best demonstrated on television #ifferent types of messages may re8uire different media A message announcing a ma*or sale tomorro0 0ill re8uire radio or ne0spapers. a message 0ith a lot of technical data might re8uire magaEines or direct mailings Cost is also a ma*or factor in media choice :hereas television is very e"pensive, for e"ample, ne0spaper advertising cost much less 'he media planner looks at both the total cost of using a medium and at the cost per thousand e"posures the cost of reaching <,GGG people using the medium Media impact and cost must be ree"amined regularly Se,e !ing S3e i-i Me)ia +e/i ,e# 'he media planner no0 must choose the best media vehicle specific media 0ithin each general media type For e"ample, ne0spapers is the media and /'he 9indu1, /'imes of $ndia1 are vehicles $f advertising is placed in magaEines, the media planner must look up circulation figures and the costs of different advertisement siEes, color options and positions and fre8uencies for specific magaEines 'hen the planner must evaluate each magaEine of factors such as credibility, status, reproduction 8uality, editorial focus and advertising submission deadlines 'he media planner ultimately decides 0hich vehicles give the best reach, fre8uency and impact for the money Media planners also compute the cost per thousand persona reached by a vehicle

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'hey 0ould rank each magaEine by cost per thousand and favour those magaEines 0ith the lo0er cost per thousand for reaching target consumers 'he media planner also must consider the costs of producing advertisements for different media :hereas ne0spapers advertisements may cost very little to produce, flashy television advertisements may cost millions 'hus, the media planner must balance media cast measure against several media impact factors First, the planner should balance costs against that media vehicle&s audience 3uality. Second, the media planner should consider audience attention. 'hird, the planner should assess the vehicle&s editorial 3uality. $e i)ing (n Me)ia Ti;ing 'he advertiser also must decide ho0 to schedule the advertising over the course of a year Suppose sales of a product peak in #ecember and drop in March 'he firm can vary its advertising to follo0 the seasonal pattern Finally, the advertiser has to choose the pattern of the advertisements, either continuous or pulsing Continuity must scheduling advertisements evenly 0ithin a given period Pulsing means schedules advertisements unevenly over a given time period E+ALUATING A$+ERTISING E11ECTI+ENESS After sending the message, the communicator must research its effect on the target audience 'his involves taking the target audience members 0hether they remember the message, ho0 many times they sa0 it, 0hat points they recall, ho0 they felt about the message, and their past and present attitudes to0ard the product and company 'he communicator also 0ould like to measure behaviour resulting from the message ho0 many people bought a product, talked to others about it, or visited the store Feedback on marketing communications may suggest changes in the promotion

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programs or in the product offer itself !valuating advertising effectiveness is not easy $n spite of the difficulty, firms resort to evaluation of advertising results 'hey try to assess ho0 far the sales task and the communication task have been accomplished by advertising Copy tests are conducted during development process, at the end of actual production process 4pre,test5 and after the campaign in launched 4post,testing5 to find out the effectiveness Methods of Advertising !re*testing: .irect rating: Jnder this test, advertiser e"poses a consumer panel to alternative advertisements and asks them to rate the advertisements 'hese direct rating indicate ho0 0ell the advertisements get attention and ho0 they affect consumers A high rating indicates a potentially more effective advertisement Portfolio tests: Jnder this method, consumers vie0 or listen to a portfolio of advertisements, taking as much time as they need 'hey then are asked to recall all the advertisements and their content, aided or unaided by the intervie0er 'heir recall level indicates the ability of an advertisement to stand out and its message to be understood and remembered 1aboratory tests: 'hese tests use e8uipment to measure consumer&s physiological reactions to an advertisement heartbeat, blood pressure, pupil dilation, perspiration 'hese test measure an advertisements attention getting po0er, but reveal little about its impact on beliefs, attitudes or intentions Methods of Advertising !ost*testing: Recall tests: Jnder this the advertiser asks people 0ho have been e"posed to

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magaEines or television programmes to recall everything they can about the advertisers and product they sa0 (ecall score indicates the advertisement&s po0er to be noticed and retained Recognition rests: Jnder this test the researcher asks readers of a given magaEine to point our 0hat they recogniEe as having seen before (ecognition scores can be used to assess the advertisement&s impact in different market segments and to compare the company&s advertisements 0ith competitor&s advertisements PU5LIC RELATIONS Another ma*or mass,promotion tool is 'ublic relations * building good relations 0ith the company&s various publics by obtaining favourable publicity, building up a good /corporate image1, and handling or heading off unfavorable rumours, stories and events 'he old name for marketing public relations 0as publicity, 0hich 0as seen simply as activities to promote a company or its products by planting ne0s about it in media not paid for by the sponsor %ublic relations is a much broader concept that includes publicity as 0ell as many other activities %ublic relations departments may perform any or all of the follo0ing functions Press relations or press agency: Creating and lacing ne0s0orthly information in the media to attract attention to a person, product, or serice Product publicity: %ubliciEing specific products Public affairs: Building and maintaining national or local community relations 1obbying: Building and maintaining relations 0ith legislators and government officials to influence legislation and regulations Investor relations: Maintaining relationships 0ith shareholders and others in the

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financial community .evelopment: %ublic relations 0ith donors or members of nonprofit organisation to gain financial or volunteer support %ublic relations are used to promote products, people, places, ideas, activities, organiEation and even nations %ublic relations can have a strong impact on public a0areness at a much lo0er cost than advertising 'he company does not pay for the space or time in the media (ather, it pays for a staff to develop and circulate information and to manage events $f the company develops an interesting story, it could be picked up by several different media, having he same effect as advertising that 0ould cost millions of dollars And it 0ould have more credibility than advertising %ublic relations results can sometimes be spectacular Some companies are setting up special units called marketing public relations to support corporate and product promotion and image making directly Many companies hire marketing public relations firms to handle their %( programmes or to assist the company public relations team MAGOR PU5LIC RELATIONS TOOLS %ublic relations professional use several tools )ne of the ma*or tools is news %( professional find or create favourable ne0s about the company and in its products or people Sometimes ne0s stories occur naturally, and sometimes the %( person can suggest events or activities that 0ould create ne0s *peeches can also create product and company publicity $ncreasingly, company e"ecutive must field 8uestions form the media or give talks at trade associations or sales meetings And these events can either build or hurt the company&s image Another common %( tool is special events, ranging from ne0s conferences, press tours, grand openings and fire0orks displays to later sho0s, hot, air balloon releases, multimedia presentations and star,studded spectaculars designed to

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reach and interest target publics %ublic relations people also prepare written materials to reach and influence their target markets 'hese materials include annual reports, brochures, articles, and company ne0sletters and magaEines %udiovisual materials, such a films, slide,and,sound programmes, and video a audio cassettes, are being used increasingly as communications tools Corporate 2 identity materials also can help create a corporate identity that the public immediately recogniEes +ogos, stationery, brouchers, signs, business forms, business cards, buildings, uniforms and company cars and trucks all become marketing tools 0hen they are attractive, distinctive and memorable Companies also can improve public good0ill by contributing money and time to public$service activities $n considering 0hen and ho0 to use product public relations, management should set %( ob*ectives, choose the %( messages and vehicles, implement the %( plan and evaluate the results RE+IE& 7UESTIONS8 < = > #efine advertising :hat are its ob*ectivesM :hat are the different methods of advertising budgetM :hat are the types of advertising mediaM :hat are the factors to be considered in choosing the media ? @ A 9o0 to evaluate the 3effectiveness of advertisement1 Bring out the importance of public relations in marketing #iscuss the various methods of public relations

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IIIIIIIIIIIIIIIII

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LESSON 6 15 SALES PROMOTION Learning Obje !i"e# After reading this lesson, you should be able to understand 'he meaning and ob*ectives of sales promotion. Methods of sales promotion aimed at consumers, dealers and sales force !valuating the effectiveness of sales promotion

Sales promotion is essentially a direct and immediate inducement that adds an e"tra value to the product, so that it induces the dealers and ultimate consumers to buy the product $t is defined as /those sales activities that supplement both personal selling and advertising and coordinate them and help to make them, effective, such s display, sho0s and e"positions, demonstrations and offer non,recurrent selling efforts not in the ordinary routine1 Sales promotion measures are temporary promotion methods $t is practiced as a catalyst and as supporting facility to advertising and personal selling NEE$ 1OR SALES PROMOTION Marketers resort to sales promotion to meet the follo0ing needs: 4<5 'o introduce ne0 product 4=5 'o overcome a uni8ue competitive situation

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4>5 'o e"haust accumulated inventory 4?5 'o overcome seasonal slumps 4@5 'o get additional customers 4A5 'o retain the e"isting customers 4B5 'o supplement to the advertising effort 4C5 'o supplement to the salesmen&s effort 4D5 'o persuade the salesmen to sell the full line of products 4<G5 'o persuade dealers to procure more

'he sales promotion effort may be aimed at consumers, traders dealers and salesmen Me!/()# (- Sa,e# Pr(;(!i(n 'he sales promotional methods aimed at consumers include: 4<5 Samples 4=5 Coupons 4>5 %remiums 4?5 Contest, S0eepstakes and -ames 4@5 %oint and %urchase %romotion 4A5 #iscounts F (ebates 4B5 Advertising Specialties 4C5 #emonstrations

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4D5 'rade fairs and e"hibitions Sa;3,e# Samples are offers of a trial amount of a product Some samples are free, for others, the company charges and small amount to offset its cost 'he sample might be delivered door to door, sent by mail, handed out in a store, attached to another product, or featured in an advertisement Sampling is most effective but most e"pensive 0ay to introduce a ne0 product C(*3(n# Coupons are certificates 0hich offer price reductions to consumers during the subse8uent purchase of same items Coupons are distributed through ne0spapers and magaEines, advertisements or even by direct mail 'hese are useful for introducing ne0 product and to increase the sale of e"isting product Pre;i*; (r 5(n*# O--er An offer of a certain amount of product at free of cost to buyers 0ho buy a specified amount of product is called premium offer or bonus offer For e"ample one silver spoon 0ith 9orlicks or plastic bucket 0ith < kg of Surf po0der A premium may come inside the package or outside the package $f reusable, the package itself may serve as a premium C(n!e#!#% S4ee3#!a0e# an) Ga;e# $n contest, an opportunity is provided for consumers to participate in a contest 0ith chances of 0inning cash priEes, goods, free air tickets, cricket match tickets etc Contests take variety of forms such as 8uiE contest, beauty contest, car rallies, lucky dra0s etc A sweepstake involve merely inclusion of the customer&s name of his bill number 0ho buy more than the specific value of productgs in the dra0ing of priEes

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0inners A game presents consumers 0ith something missing letters or completing a slogan every time they buy, 0hich may or may not help them 0in a priEe P(in! (- P*r /a#e APOPB Pr(;(!i(n %oint of %urchase promotions include display and demonstrations that take place at the point of purchase or sale Attractive displays of products in the shelf space to induce the consumers to buy the product $i# (*n! H Reba!e $t is giving discount on certain products to induce buyers to buy the products )ne could see grand discount sales during festival seasons on te"tiles, home appliances etc to stimulate sales $nstallment offer and credit sales are other popular methods of sales promotion A)"er!i#ing S3e ia,!ie# Companies also distribute gifts to customers such as pen, calendars, diaries, table decorations etc 0hich 0ill carry companies name and logo $e;(n#!ra!i(n Firms resort to product demonstrations 0hen they introduce ne0 products 7acuum Cleaners is a best e"ample #emonstrations may be done at retail stores, schools, homes and in trade fairs and e"hibitions Tra)e 1air# an) E./ibi!i(n# Firms can introduce their products by displaying them in trade fairs and e"hibitions to induce the buyers to buy the product !specially in international marketing international trade fairs play a vital role

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$EALER SALES PROMOTIONS 'rade promotion can persuade retailers or 0holesalers to carry a brand, give it shelf space, promote it in advertising, and push it to customers Shelf space is so scarce these days that manufacturers often have to offer price,offs, allo0ances, buy,back guarantees, or free goods to retailers and 0holesalers to get on the shelf and, once thereon, to stay on it #ealers sales promotions include: 4<5 Buying allo0ance 4=5 %romotional allo0ance 4>5 Sales contest 5*2ing A,,(4an e $t involves an offer to percentage off, on each minimum 8uantity of product purchased during a stated period of time by the dealer 'he buying allo0ance is usually given in the form of cash discount or 8uantity discount Pr(;(!i(n A,,(4an e 'his is given to compensate the dealers for promotion e"penses incurred by them 'hese include advertising allo0ance, display allo0ance etc 'he manufacturers may also issue advertisement or other publicity materials like calendars, key chains 0hich carry the names of retailers 0ho stock the product Sa,e# C(n!e#! $t is a contest among the dealers in selling the product 'he 0inners 0ill be given priEes by the manufacturers 'his is done to stimulate the distributions F dealers

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SALES 1ORCE PROMOTIONS 'he tools at sales force for sales promotion include: i5 ii5 iii5 5(n*# A 8uota is set for sales force for a specific period Bonus is offered to sales force on sales e"cess of the 8uota Sa,e# 1(r e C(n!e#! 'he contests are conducted among the sales force to stimulate selling and priEes are a0arded to the top performers Sa,e# Mee!ing# Sales meetings, conventions and conferences are conducted for the purpose of educating, inspiring and re0arded the salesmen 6e0 products and ne0 selling techni8ues are also described and discussed FAC')(S ') B! C)6S$#!(!# $6 )(-A6$S$6- SA+!S %()M)'$)6 CAM%A$-6 1' I)en!i-2ing an) $e-ining Sa,e# Pr(;(!i(na, Obje !i"e# $s it to enhance dealer&s off,take of the productM $s it to bring e"tra salesM Bonus Sales force contest Sales meetings

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$s it to clear accumulated stockM $s it to supplement advertisementM 2' I)en!i-2 !/e Rig/! Pr(;(!i(na, Pr(gra;;e 'he firm has to select the right promotional programme suitable to the current need and the current situation

3' En,i#! !/e S*33(r! an) In"(,"e;en! (- Sa,e#;en For success, it is essential that salesmen are briefed on the conte"t and content of the promotion programme, informed their roles and given detailed information F guides regarding 0hat they to do during different stages of the campaign 4' En,i#!ing !/e S*33(r! (- $ea,er# Since ma*or part of the activity has to take place around the dealer, it is essential to enlist their support and motivate them 5' Ti;ing (- !/e Ca;3aign 'he programme has to be launched at the appropriate time 6' La*n /ing an) 1(,,(4-*3 'he programme has to be perfectly launched and tempo should be maintained till end 0ith proper follo0,up E+ALUATION O1 SALES PROMOTION After spending a siEeable amount on sales promotion, it is very much essential that the company has to evaluate their sales promotional programmes Companies can use

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one of many evaluation methods 'he most common method is to compare sales before, during and after a promotion Consumer research also 0ould sho0 the kinds of people 0ho responded to the promotion and 0hat they did after it ended *urveys can provide information on ho0 many consumers recall the promotion, 0hat they thought of it, ho0 many took advantage of it, and ho0 it affected their buying Sales promotions also can be evaluated through e-periments that vary factors such as incentive value, length and distribution method Clearly, sales promotion play an important role in the total promotion mi" 'o use it 0ell, the marketer must define the sales,promotion ob*ectives, select the best tools, design the sales,promotion program, pretest and implement the program, and evaluate the results RE+IE& 7UESTIONS8 < = > #efine sales promotion :hat are its ob*ectivesM #iscuss the various methods of sales promotions :hat are the factors to be considered 0hile organiEing sales promotion campaignM ? 9o0 0ould you evaluate the effectiveness of sales promotionM IIIIIIIIIIIIII

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LESSON 6 16 PERSONAL SELLING Learning Obje !i"e# After reading this lesson, you should be able to understand Meaning and importance of personal selling. Steps involved in the selling process. 'he 8ualities re8uired for a successful salesmen Management of sales force (ecruitment, 'raining and Selections of sales force Compensation of sales force !valuating performance of sales force

'he people 0ho do the selling go by many name: salespeople, sales representatives, sales consultants, sales engineers, marketing representatives and sales force, to name *ust a fe0 %ersonal Selling is the only promotional tool 0hich involves the personal communication bet0een buyers and the seller %ersonal selling is specific and tailor made for the re8uirements of each customer %romotional message could by easily made in consonance 0ith the comple" situations at the buyer&s place $n other 0ords, personal selling creates a climate for interaction bet0een the parties that leads to an effective and

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timely resolution of the perceived buying need $n effect personal selling gives a 8uick response to the problem and the purchase actions is carried out immediately in most of the occasions 0ith an e"ception to industrial marketing %ersonal selling is an active effort to communicate 0ith high,potential buyers on a direct and face to face basis Sales people form the vital part of the personal selling measures 'hey provide key information to assist the companies in making purchase decisions $n this intense market driven competition, a buyer 0ill not be satisfied unless he has had a conversation 0ith the sales people before buying 0ashing machines cars, refrigeration etc #epending on the type of industry and the company, the role of personal selling varies in promotional strategy adopted by the company 'hose products 0hich are comple", technical, etc the role of personal selling becomes more important $n the case of mass based products, the promotional strategies involves mainly advertising 'hey also rely on personal selling since every time they bring out ne0 products and hence introducing the ne0 product to the dealer, customer etc is taken care partly by the sales force 'he sales force serves as a critical link bet0een a company and its customers $n many cases, salespeople serve both masters the seller and the buyer First, they represent the company to customers. 'hey find and develop ne0 customers and communicate information about the company&s products and services 'hey sell products by approaching customers, presenting their products, ans0ering ob*ections, negotiating prices and terms, and closing sales $n addition, salespeople provide services to customers carry out market research and intelligence 0ork and fill our sales call reports At the same time, salespeople represent customers to the company, acting inside the firm as /champions1 of customer&s interests Salespeople people dfgdfgdf concerns about company products and actions back to those 0ho can gd*gfds them 'hey learn about customer needs, and 0ork 0ith others in the company to develop greater customer value 'hus, the salesperson often acts as an account manager1, 0ho manages the

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relationship bet0een the seller and buyer As companies move to0ard a stronger market orientation, their sales forces are becoming more market focused and customer oriented 'he old vie0 0as that salespeople should 0orry about sales and the company should 0orry about profit 9o0ever, the current vie0 holds that salespeople should be concerned 0ith more than *ust producing sales 2 they also must kno0 ho0 to at sales data, measure market potential, gather market intelligence, and develop efforts to0ard delivering customer value and satisfaction A market,oriented rather than a sales,oriented sales force 0ill be more effective in the long run Beyond 0inning ne0 customers and makes sales, it 0ill help the company to create long term profitable relationships 0ith customers

PERSONAL SELLING PROCESS 'he sales process is a series of interrelated steps beginning 0ith locating 8ualified prospective customers From there on the sales person plans the sales presentation, makes appointment to see the customer, completes the sale and does post sales activities 'his process is sho0n in the follo0ing figure

%rospecting

%re,approach

Sales %resentation %lan

9andling )b*ectives

Sales %resentation

Approac h

Closing Sales

Follo0, up

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1' Pr(#3e !ing $nitially the sales person has to locate the list of prospective and potential customers 'he sales person, may use e"ternal sources like reference concerts community contracts, clubs etc and internal sources like the records maintained by the company, in8uires, personal contracts and other sales seminars After identifying the customers they have to be screened for locating the e"act 3prospects& $f the prospect is 0orth calling irrespective of immediate grains or for the future purposes, heFshe may be included in the list of prospective customers 2' Pre-A33r(a / Sales person collects information about the prospect that 0ill be used to formulate the sales presentation Sales person understands the buyers needs, buyer motives and other details relevant for making the sales presentation Care should be taken to avoid invasion of privacy and details should be only to the kno0ing of intensity of purchase by the customers 3' Sa,e# Pre#en!a!i(n P,anning 'he sales person must begin specifically stated ob*ective for each sales presentation 'he ob*ectives could be order 8uantities, value of purchase, communication or agreements 0ith the buyer Sales person should be able to identify the benefits to be offered to the buyer for clinching the sale Formats should be used for planning the sales presentation A sales proposal may be developed after careful investigation of the prospect&s needs 'his is often combined 0ith fact to face presentations and 8uestion and ans0er periods 'he sales person should draft the appropriate pace for presentation and identification of benefits and terms of sale to be discussed 9e should also understand the e"tent of in8uiry into the prospect&s needs and decision making ability 'he degree of

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interaction 0ith the prospect must be 0ell thought of $f need be, sales aids may be used 'he actual selling begins as sales person seeks an intervie0 0ith the prospect 4' A33r(a / Approaching the customer is done in t0o phases: 'he first phase is getting an appointment for the sales intervie0 'his 0ill give a feeling of prospect&s time importance Appoints may be made over phone, mail or personal contact $n the second phase, the first fe0 minutes of sales call harmonious atmosphere must be made like normal eti8uette and courtesy 0ith the prospect&s understanding the prospect&s signals and informing about the benefit through the purchase of the product etc 5' Se,e# Pre#en!a!i(n 'he sales person e"pands on the basic theme established in the first fe0 minutes of the sales call or during the previous sales calls $n order to reduce the perception of risk in the prospect, the sales person should present himself or herself as the credible source of information By dressing appropriately sho0ing the traits of honesty and integrity and able to listen to the prospect&s vie0s are considered to be a credible source of information !ven 8uoting a third party for evidence, guarantees, 0arranties etc , 0ould also add to the prospect&s listening 'he presentation should be having clarity of thought and the sales person should be able to handle ob*ections and 8uestion

6' 9an),ing Obje !i(n#

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Customers almost al0ays have ob*ections during the presentation or 0hen asked to place an order 'he problem can be either logical or psychological and ob*ections are often unspoken $n handling ob7ections, the salesperson should use a positive approach, seek out hidden ob*ections Ask the buyer to clarify any ob*ections, take ob*ections as opportunities to provide more information, and turn the ob*ections into reasons for buying !very salesperson needs training in the skills of handling ob*ections >' C,(#ing !/e Sa,e 'he sales person must be able to facilitate the prospect&s decision making process to0ards making the purchase and to furnish the stimulus for the decision at the appropriate time Several techni8ues like direct close, summary close, choice close etc , are available for the sales person to choose for closing the sale Some sales people fear re*ection and may hence avoid the stimulus for the purchase decision 'he 8uestion of 0hen to seek the completion of the sale is a *udgment by the sales person 0ith the assistance of the prospect $n this stage once the sale is closed the 3prospect& becomes the 3customer& ?' 1(,,(4 U3 $n order to ascertain the delivery of the benefits and satisfaction guaranteed by the product and to establish a mutually satisfying long term relationship 0ith the customers follo0 up is important By e"pediting the orders, installing the product and after sales service may be the follo0 up activities Building trust 0ith the customer is important as it is achieved 0hen the sales person is perceived as dependable, honest, competent, customer,oriented and likable 'hese customer e"pectations are reasonable and are controllable through recruitment, selection training and supervision of sales personnel 7UALITIES O1 A E11ECTI+E SALESPERSON

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-ood salesmanship is not a matter of some rare, persuasive, inherited skill, 0hich, 0hen, 3turned on&, magically gets the order )n the contrary good salesmanship is the result of careful analysis of the buyer&s problem combined 0ith some articulateness in e"plaining to the buyer ho0 the seller can solve his problem 'his siEe,up of salesmanship may 0ell emphasiEe the personal 8ualities re8uired of good salesman Most companies desire that certain essential personality traits, 8ualities, characteristics, aptitudes, attitudes and abilities should be possessed by the people 0hom they 0ant to recruit to the sale force 9o0ever there is no standardiEed formula for listing the essential 8ualities such thing as the ideal sales personality 'here are many kind of selling *obs re8uiring different types of salesman So, the characteristics of salesmen usually vary from one sales position to another and also form company to company 'his means, each company should make its o0n study of its selling *ob and decide the characteristics of its o0n sales force 9o0ever, a number of lists of essential characteristics are available Mayer and 9erbert conclude, 3it is enough if a good salesmen has t0o basic 8ualities empathy and ego drive& !mpathy is the ability to feel as the customer does !go drive refers to a strong personal need to make the sale for its o0n sake and not merely for the money to be gained But these are rarely enough 'he ma*ority of scholars feel that the follo0ing should be the essential characteristics of successful salesman

< = > ? @ A

Ambition !nthusiasm Cheerfulness Sympathy %atience and persistence 'act

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B C D

9ard 0ork #etermination #ependability

<G $ntegrity << Ability to ask 8uestions <= Ability to make 8uick and accurate spot *udgments <> Ability to provoke ans0er <? Models and confident ans0ers to 8uestions <@ Alertness <A Sense of humour <B Story telling ability <C Ability of smile <D )ptimism =G (ight facial e"pression =< Ability to mi" easily 0ith other people == Memory => +eadership =? %o0er of observation =@ Acceptance of criticism =A 9abit of asking for the order =B ;no0ledge of the company =C ;no0ledge of the product =D ;no0ledge of the prospect >G %ersonal appearance

As pointed our already, the above are the common 8ualities re8uired of a good salesman $n practice it is difficult to find from a single individual all the above

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8ualities But still, the individual could develop the above 8ualities to become a better salesman

MANAGEMENT O1 SALES 1ORCE


Management has been defined as the art of 3getting things done through people& $t is also 3the development of people and not the direction of things& Sales management is no e"ception to this !ffective implementation of the sales policies depends largely on the efficiency and number of salesmen at the sales management&s disposal Sales force management is defined as the analysis, planning, implementation and control of sales force activities $t includes designing sales force strategy and structure and recruiting, selecting, training, compensating, supervising and evaluating sales force

$ESIGNING SALES 1ORCE STRATEG: AN$ STRUCTURE A company can divide sales responsibilities along any of several lines 'he decision is simple if the company sells only one product,line 0ith customers in many locations $n that case, the company 0ould use a territorial sales force structure. 9o0ever, if the company sells many products to many types of customers, it might need a product sales force structure, a customer sales force structure or a combination of the t0o $n the territorial sales force structure each salesperson is assigned to an e"clusion geographic territory and sells the company&s full,line of products or services to all customers in that territory 'his has many advantages $t clearly defines sales persons *ob and it also increases the salespersons desire to build local business relationship that, in turn, improve selling effectiveness Finally, because each salesperson travels 0ithin a limited geographic area, travel e"penses are relatively small

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$n product sales force structure, the sales force sells a portion of the company&s products or lines 'his means the salespeople travel over the same route and 0ait to see the same customers 'hese e"tra costs must be compared 0ith the benefits of better product kno0ledge and attention to individual product $n customer sales force structure, the companies organiEe the sales force along customer or industry lines Separate sales forces may be set up for different industries, for serving different customers )rganiEing the sales force around customers can help a company become more customer focused and build closer relationship 0ith important customers Comple- sales force structure: :hen a company sells a 0ide variety of products to many types of customers over a broad geographical area, it often combines several types of sales force structure Salespeople can be specialiEed by customer and territory, by product and territory, by product and customer, or by territory, product, and customer 6o single structure is best for all companies and situations !ach company should select a sales force structure that best serves the needs of its customers and fits its overall marketing strategy SALES 1ORCE SIEE Many company use some form of workload approach to set sales force siEe Jsing this approach, a company first groups accounts into different classes according to siEe, account status, or other factors related to the amount of effort re8uired to maintain them $t then determines the number of salespeople needed to call on each class of accounts the desired number of times 'he company might think as follo0s: Suppose 0e have <,GGG 'ype,A accounts and =,GGG 'ype,B accounts 'ype,A accounts re8uire >A calls a year and 'ype,B accounts re8uire <= calls a year $n this case, the sales force&s 0orkload the number of calls it must make per year, is AG,GGG calls

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V4<,GGG " >A5 W 4=,GGG " <5 X Suppose our average salesperson can make <,GGG calls a year 'hus, the company needs AG salespeople 4AG,GGG F <,GGG5 RECRUITMENT AN$ SELECTION A salesman is an important cornerstone upon 0hich a sales organisation is built Conse8uently, sales managers are confronted 0ith the task of planning a sound selection programme of salesmen 'raining, motivation etc are other prime factors in developing an effective sales organisation But the degree of success depends, to a large e"tent, on the ability of a sales manager to /attract, discover, and hire the right kind of man1 Selecting a proper man is important due to follo0ing reasons 4a5 Selling *obs have become more difficult because of the greater comple"ity of product or service, the multiplicity of channels of distribution etc 4b5 Markets today are highly competitive 4c5 Selling as a 3career& or profession has not been fully accepted, and hence there is only a limited number of salesman 0ho could really 8ualify for this *ob 4d5 'here is 0ide variability in the sales effectiveness of salespeople 4e5 Salespeople are very costly $f a company decides to employ e"tra sales personnel, the cost 0ill be much higher than *ust basic salary 4and commission5 4f5 )ther important determinants of success, like training and motivation are heavily dependent on the intrinsic 8ualities of the recruit (ecruitment is an act of inducing 8ualified and appropriate people to get interested in and apply for a salesman&s position 0ith the company $t involves the identification, location and stimulation of *ob aspirants Since it is an ongoing process, usually

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companies maintain and continuously update the prospect files and develop contact 0ith educational and training institutions and employment e"change so as to get appropriate leads for locating candidates $n brief, recruitment means making people to aspire for a *ob 0ith the company Selection is a conse8uence of recruitment activities and implies choosing the desired number of applicants for employment 0ith the company from amongst those 0ho have applied $t involves the process of matching education, aptitudinal and personality attributes of the applicants 0ith the man,specifications, laid do0n by the company 'here are a number of stages in the recruitment and selection process: < = > ? @ A %reparation of the *ob description and personnel specification $dentification of sources of recruitment #esigning an effective application form 'est and $ntervie0ing (eference checking and Medical fitness %lacement

1' G(b $e# ri3!i(n an) Per#(na, S3e i-i a!i(n Pob description is a statement defining the nature and content of the *ob and specifies the duties and responsibilities of the incumbent for the *ob -enerally a *ob description 0ill cover the follo0ing factors: 'he title of the *ob

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#uties and responsibilities 'he organiEational relationship 0ith peers, supervisors, and other management personnel 'he conditions under 0hich *ob is typically involved #egree of autonomy )nce generated, the *ob description 0ill act as a blueprint for the personnel specification 0hich outlines the type of applicant the company is seeking %ersonnel specification is a statement specifying the kind of person re8uiring for the *ob described A personal specification may contain all or some of the follo0ing factors: <5 %hysical re8uirements, e g speech, appearance =5 Attainments, e g standard of education and 8ualifications, e"perience and successes >5 Aptitudes and 8ualities, e g ability to communicate, self,motivation ?5 #isposition, e g maturity, sense of responsibility @5 $nterests, e g degree to 0hich interests are social, active, inactive A5 %ersonal circumstances, e g married, single, etc 'he factors chosen to define the personal specification 0ill be used as criteria of selection in the intervie0 itself 2' I)en!i-i a!i(n (- S(*r e# (- Re r*i!;en! 'here are si" main sources of recruitment: <5 From inside the company&s o0n staff

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=5 !mployment agencies >5 !ducational establishment ?5 Competitors @5 %ress advertisements A5 Causal applicants 3' $e#igning an E--e !i"e A33,i a!i(n 1(r; 'he application form is a 8uick and in e"pensive method of screening out applicants in order to product a short,list of candidate for intervie0 'he 8uestion on the form should enable the sales manager to check if the applicant is 8ualified vis,Y,vis the personnel specification Ruestions relating to age, education, previous 0ork e"perience and leisure interests are often included Besides giving such factual information, the application form also reveals defects such as an inability to spell, poor grammar or carelessness in follo0ing instructions :hatever the criteria, the applications form 0ill often be the initial screening device used to produce a short,list $ts careful design should, therefore, be a high priority for those involved in selection Four categories of information are usual on application forms < = > ? %ersonal 6ame Address and telephone number Se"

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@ A B

Marital status Children #ate of birth and age

= !ducation Schools : %rimary F Secondary Further and higher education : $ntuitions, courses taken Rualifications SpecialiEed training ! g apprenticeships, sales training Membership of professional bodies

> !mployment 9istory Companies 0orked for #ates of employment %ositions, duties and responsibilities held Military services

? )ther interests Sports 9obbies Membership of societies F clubs

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Such an application form 0ill achieve a number of purposes 'o give a common basis for dra0ing up a short list 'o provide a foundation of kno0ledge 0hich can be used as the starting point for the intervie0 'o aid in the post,intervie0 decision,making stage

9aving eliminated a number of applicants on the basis of the application form, an initial or final short,list 0ill be dra0n up depending on 0hether the intervie0ing procedure involves t0o stages or only one stage 4' Te#! an) In!er"ie4 $n order to develop an in,depth understanding of the candidates, the company may administer himFher a number of psychological and other tests 'he psychological test blanks or even attempt to identify and 8uantify more accurately the various personality traits and attributes that are not usually measured by the screening of application intervie0s 'hree types of psychological test are used in the selection system of sales

personnel tests of ability, tests of habitual characteristics, and tests of achievement : 'ests of ability attempt to measure ho0 0ell a person can perform a particular task 0ith ma"imum motivations 'hey are tests of best performance and include tests of mental ability 4intelligence tests5 and test of special abilities, or aptitude tests 'ests of habitual characteristics attempt to gauge ho0 prospective employees 0ould act in their daily 0ork normally, i e not 0hen they are on their best behaviour 'hese are tests of typical performance and they include attitude, personality, and interest tests %chievement tests are designed to measure /ho0 much individuals have learnt from their training or education1 Besides, a company may also administer physicalF medical tests to ascertain the physical fitness of the candidate for a hard and strenuous selling *ob

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$ntervie0s may precede or follo0 the administration of tests depending on the convenience of the company $ntervie0ing involves personal interaction bet0een the candidate and intervie0er4s5 in either a formalF patterned or informal setting $n these intervie0s a candidate is asked a number of 8uestions originating our of application blanks so as to verify and interpret the facts contained therein as also to gather supplementary relevant information 5' Me)i a, C/e 0-*3 an) Re-eren e C/e 0ing 'he institution may ask the candidates to undergo medical check,up to find out their physical fitness for performing the *ob 'he organisation may ask the applicant to furnish a fe0 names 0ho could be contacted by the employer to verify the validity of the information provided by the applicant and his personal behaviour 6' P,a e;en! :hen a ne0 recruit is formally assigned his duties and educated about his 0ork, the selection process comes to an end 'he general tradition is such that supervisor or the immediate boss of the ne0 recruit takes him to the place of 0ork, e"plains him his 0ork, and also informs him about the history, development and traditions of the company 'he selected employee on being placed in inducted in the industry by ac8uainting him 0ith the overall organisation structure, aims and ob*ectives, his place in the organiEational set,up his reporting authority, his responsibilities etc 9e is given a feel of the organisation 9e is introduced to his superiors, peers and subordinates 'his makes him comfortable and puts him at ease 'he selection procedure differs from one organisation to another and also 0ithin the same organisatoin depending on the situation and needs of the organisatoin as 0ell as

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the level for 0hich selection is done Moreover, the selection process to select lo0er, level 0orkers is least e"pensive. 0hile the selection of top,level employees 0ould be much more e"pensive because it re8uires the use of complicated selection tools

TRAINING 'he essence of all training is the belief that performance of people can be improved through training 'he same basic approach should govern sales training as 0ell $t should rest on the conviction that every salesman can be improved through carefully designed training 'he need for training arises due to the follo0ing reasons: 4a5 'raining helps recruits to ad*ust to ne0 methods and procedure of the firm 4b5 $t enables the recruit to meet standards of performance e"pected of him 0hich 0ill increase his value to the firm 4c5 $n the case of e"perience hands and present employees, training enables them to ac8uire more and greater skills 4d5 -ood training reduces dissatisfaction among salesmen and reduces the rate of salesmen turnover CONTENTS O1 TRAINING #eciding the content of training is also a very important task in organiEing sales force training Some of the common topics on 0hich salesmen are given training are listed belo0: ;no0ledge about market

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;no0ledge about customers ;no0ledge about products ;no0ledge about competitions ;no0ledge about the company ;no0ledge about selling techni8ues TRAINING MET9O$S For imparting training to salesmen a variety of training methods are available to companies ranging form simple lecturing to comple" sensitivity training Self Study +ecture Method #iscussion (ole %laying Sensitivity 'raining Case Study )n,the,Pob 'raining

E"a,*a!i(n (- Training 9aving trained the salesmen, marketing management should evaluate the effectiveness of the training sessions and the overall impact of the training programme on

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the salesman&s performance 'he overall impact of the programme, on the other hand, may be evaluated by comparing salesman&s performance in terms of sales volume, sales profitability, order siEe, e"penses etc bet0een pre,and post,training periods 9o0ever, 0hen salesmen are ne0 recruit such comparisons may not be possible $n such a case therefore, *udgment may be formed on the basis of absolute total performance COMPENSATION Salesmen&s compensation means monetary re0ard given by a company to its salesmen in consideration of the services rendered by them $t generally includes contractual payments but may also include non,contractual and adhoc payments Since every compensation plan in respect of salesmen attempts to re0ard them for their services to a company, it serves as an important vehicle for inducing them to continue to serve it $t not only keeps salesmen on the company rolls but also motivates them to contribute to the gro0th of the company and thereby get gro0n individually Besides, compensation is an important managerial tool to control and direct sales force to attain the sales ob*ectives $t also influences customer relations and good0ill 'herefore, in the management of sales force, the compensation plan plays a very important role ReD*ire;en! (- G(() C(;3en#a!i(n P,an $t should be simple to understand by salesman $t should be fair to both the salesman and the company $t should ensure a living 0age to salesmen $t should also be fle"ible to provide scope for ad*ustment $t should be easy and economical for administration

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Me!/()# (- C(;3en#a!i(n 'here are basically three types of compensation plan: Fi"ed salary Commission only Salary plus commission

1' S!raig/! Sa,ar2 $t is a very common method of compensating salesmen $t is composed of only a fi"ed component 0hich they receive in the form of salary paid in terms of a unit of time, usually a month $t is fi"ed and guaranteed and does and not vary 0ith any measure of productivity 2' S!raig/! C(;;i##i(n $t this method, compensation is composed of only a variable component 0hich is related to some measure of productivity like sale volume, collection of outstanding trade debts, invoicing, net profits, etc 9o0ever, usually, sales volume is the basis on 0hich salesmen&s commission in computed 3' Sa,ar2 P,*# C(;;i##i(n :hen straight salary and straight commission methods of compensation are combined in some acceptable form, the combination method of compensation emerges $n this method usually a mi" of salary 4fi"ed component5 and commission 4variable component5 is developed in such a 0ay that salesmen are assured of a secured steady income and also ade8uate incentive to 0ork harder 1ringe 5ene-i!#

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Besides the above, salesmen are entitled to most of the fringe benefits given to other company employees E+ALUATION O1 PER1ORMANCE O1 SALES 1ORCE 'he last phase in sales force management, but in no 0ay less significant than others, is the control of sales force operations $n the conte"t of sales force management, control means appraisal of salesman&s performance both periodically and on a continuing basis in order to determine the compliance of policies and achievement of plan targets in respect of their *ob 'he ob*ectives of sales force control are to: 4i5 4ii5 #etermine the performance levels of salesmen !nforce the compliance of policy directives and achievement of targeted performance levels, and 4iii5 $dentify the areas 0here corrective action is re8uired

Control is also intended to develop a base on 0hich to consider salesmen for various kinds of re0ards and penalties Me!/()# (- C(n!r(,,ing Sa,e#;en < = > Fi"ing sales 8uota !stablishing sales territories !stablishing control through reports and records

<

&i-ing *ales 8uota: Sales 8uotas are 8uantitative measures of the effectiveness of

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sales people 'he 8uota may be set in terms of value or in terms of unit or sales Ruotas may also be set for ne0 customers obtained, for orders taken for particular products or for almost any type of marketing activity = ,stablishing *ales 'erritorles: A sales territory is /the basic unit of sales planning and sales control, representing a certain segment of the future sales and profits of the company1 $t means the division of the market of the company into small segments 'his is not only means for controlling the salesmen but from the management point of vie0 it has important bearings on their sales planning > ,stablishing Control 'hrough !eports and !ecords: Company records are a variable source of a variety of information pertaining to salesmen&s performance 'his information is contained in sales invoices, orders, credit notes, ledger accounts etc 0hich are located in the accounts and sales departments of a company An analysis of these reveals salesmen&s performance as regards sales volume, gross margins, average order siEe, market share etc !eports sent by salesmen about their operations also provide considerable information 0hich 0hen analyEed provide the re8uired inputs to measure performance 'he reports may give information about calls made, e"penses, 0ork plan, ne0 business booked, lost,sale etc Additional information comes from personal observation, consumer&s letters and complaints, customer and talks 0ith other salespeople Formal evaluation produces the follo0ing benefits: Management must develop and communicate clear standards for *udging performance Management must gather 0ell,rounded information about each salesperson

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Salespeople receive constructive feedback that helps them to improve future performance Salespeople are motivated to perform 0ell because they kno0 they are ans0erable

A follo0,up action is necessarily re8uired after evaluation of performance :hen appraisal is not follo0ed by any action is loses much of its relevance 'herefore, in order to secure the effectiveness of the control system, management must trigger appropriate action necessitated as a result of appraisal

(evie0 Ruestions: < = > ? @ #iscuss the steps involved in selling process !numerate the 8ualities re8uired for a successful salesman :hat are the steps involved in recruitment and selections of salesmenM :hat is the need for training sales forceM Briefly e"plain various training method :hat are the characteristics of a good compensation planM Specify different methods of compensation of sales man A :hat are the different methods of evaluation of performance of sales forceM IIIIIIIIIIIIIIII

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CASE ANAL:SIS
A case is a description of situation involving problems to be solved 9o0ever, the case may not have as complete information about the problem as reader 0ishes 'he amount of detail re8uired 0ould make the case too long to read to too detailed to analyEe A case may be presented either in structured form or in unstructured form $n a highly structured case, there are leading 8uestions at the end that indicate a focus and predetermine the directions in 0hich the discussion 0ill go 'he case method of learning has the follo0ing ob*ectives: 'he description of real business situation to ac8uaint the learner 0ith the principles and practices obtained in 0ork setting. $ntroduction of realism into formal instruction. #emonstration of various types of goals, problems, facts, conditions, conflicts and personalities obtained in organiEational settings. #evelopment of decision,making ability. and #evelopment of independent thinking but cooperative approach to 0ork in team situations G*i)e,ine# -(r Ca#e Ana,2#i# 'he basic approach in a case analysis should be to get on the problem and provide its solution 9o0ever, this can be achieved only 0hen the participants go through a number of se8uential activities For e"ample, a case analyst can put follo0ing 8uestions in se8uence to find the problem and its likely solutions:

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4i5 4ii5 4iii5 4iv5 4v5

:hat are the actual problems involved in the caseM :hat are the relevant factsM :hat are the crucial unkno0n aspects of the sceneM :hat are the ma*or critical 8uestions related to each specific eventM $n 0hat 0ays, can logic and reasoning be used to determine crucial inference, connections and relationshipsM

4vi5

$n 0hat manners contradictory facts and arguments can be 0eighted in making decisionsM

4vii5

$n 0hat 0ays can be decisions be implementedM

'he ans0ers of these 8uestions 0ill lead to define the problem, identify the alternatives for problem solution, analysis of those alternatives, and finally to choose the suitable alternative

5*2er# an) Re!ai,er 5e/a"i(*r -(r Ma! /b(.e# 1' Lig/!4e, Ma! / C(;3an2 Mr %anka* -os0ami, the Marketing Manager of +ight0el Match Company looked at the report placed before him entitled /:hy are people Striking Fe0er +ight0el MatchesM1 'he performance of +ight0el in relation to the total match industry had not been very satisfactory in the last couple of years 'he norms 0hich +ight0el had developed for average amount of stock for different classes of retailers 0ere no longer acceptable to the retail channel

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'he Board of #irectors of the company had asked Mr -os0ami to report 0hy the sales 0ere declining, 0hy the seasonal variations had become so large, and to suggest actions 0hich should be taken to stabiliEe the sales Mr -os0ami conducted a market research, he began to 0onder about the options open to +ight0el $t 0as clear to him that the consumers 0ere becoming price sensitive and brand loyalty 0as lo0 Assaults by cheaper and reasonably good 8uality small scale brands had 0eakened the customers& as 0ell as retailers& loyalty for +ight0el brands 'he retailer behaviour 0as particularly 0orrying because he 0as instrumental in making brand choice decisions in a ma*ority of cases Mr -os0ami kne0 that because of high overheads, +ight0el could ill afford to lo0er the prices of e"isting brands A cheaper and some0hat lo0er 8uality 3fighting brand& could be introduced but there 0as a risk of hurting +ight0el&s image 'he research report and indicated many plus points in terms of 8uality image of +ight0el brands 'he consumers behaviour in monsoon season confirmed this Mr -os0ami 0ondered 0hether he could capitaliEe on his substantial image advantage to increase the sales of +ight0el matches 7*e#!i(n#8 < :hy is +ight0el finding its market positions slippingM :hat is the decision issues before +ight0el !"ecutives at this stagesM = :hat marketing strategy options are available to +ight0elM :hat should it do any 0hyM IIIIIII In!r()* ing a Ne4 Pr()* ! 2' 9(*#e/(,) Pr()* !# AIn)iaB L!)'

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Mr (ahul, the marketing Manager for 'oilet soaps, 0as e"amining the draft 3'est Market %roposal& for a ne0 toilet soap, 0hich 0as prepared by the %roduct Manager 'he Marketing Manager and the %roduct Manager had been discussing the need for test marketing the product to get some feed back on the effectiveness of the marketing mi" as 0ell as to get some indication on the share that the brand could achieve nationality 'hey 0ere not very keen on committing large resources at this stage and 0ere therefore thinking of recommending a to0n test 9o0ever, because of the uni8ue promise of 3%ure Soap made from %ure 7egetable )ils&, they felt it 0as also necessary to test it in a market 0hich 0as not likely to be particularly responsive to this benefit 'he %roduct Manager suggested that $ndore and 9yderabad could be selected as the test to0s $ndore being a market 0hich is likely to respond to this uni8ue benefit of purity and 9yderabad representing markets 0hich may not value such benefit so much 'hese 0ere large enough to0ns for dra0ing conclusions from e"perience there $t 0as thus decided to run the test in these to0ns for a period of D <= months 7*e#!i(n#8 < #id the company have ade8uate information at various stages of the ne0 product introduction effortM = :hat information 0ould you need to evaluate the test market and recommend a decision on e"tension of this productM > :hat research 0ould you suggest for this purposeF IIIIIIIIIIII P(#i!i(ning a Pr()* ! 3' A;ba##a)(r T(r /,ig/!#

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Ambassador 'orchlights held the second largest share of the market for dry cell batteries and allied products 'he company 0anted to utiliEe their distribution strength and 0ere toying 0ith the idea of taking over the distribution of some consumer items :ith a vie0 to e"plore the possibility of taking up distributions of blades, Mr M A 9abib, Sales Manager of Ambassador 'orchlights, contracted Mr 7ikram %atel, Managing #irector of Central $ndustries, apart from manufacturing blades for other organiEations, has its o0n line of blades Some of the brands had been launched recently !ncouraged by the initial response, Central $ndustries had opened (egional Sales )ffices in all the four metro to0ns and had recruited a large number of sales staff for each of these offices )verheads for each of these offices 0ere considerable At the time Mr 9abib called on Mr %atel, the marketing department at the 9ead )ffice of Central $ndustries 0as planning a national promotional campaign to encourage repeat purchasing for t0o of its prestige brands 'he cost of this promotion 0as estimated to be about (s <G lakhs #uring the meeting it transpired that Mr %atel 0as very keen that Ambassador 'orchlights should take over the distribution of his o0n brands, 3Splash& and 3A0ake& 'his, he felt, 0ould enable him to close do0n the (egional )ffices 9e 0as, ho0ever, 0illing to maintain the central marketing department to advise Ambassador 'orchlights, as long a they felt it 0as necessary agreeable basis 9e, ho0ever, insisted on maintaining the right to terminate Ambassador 'orchlights as selling agents if he 0as not satisfied 0ith their performance A;ba##a)(r C(;3an2=# Pr(b,e;#8 :hen Mr 9abib reported the results of his meeting Ambassador&s top management 0ere faced 0ith the follo0ing problems: < :hether to opt for their o0n private brand or to take over distribution of 3Splash& and 3A0ake&M $n case they chose the letter, they could definitely cash in on the

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a0areness the brand had already created 'he problem 0as, even if they did a good *ob and achieved some success, there 0as not guarantee that Mr %atel 0ould not one day e"press dissatisfactions 0ith their performance, terminate them and cash in on their 3fruits of labour& = $f they preferred to market their o0n brand, ho0 should the product be positionedM Should they go for a carbon steel or stainless steel bladeM :hat segment of the population should they cater toM :hat should the price beM :hat should be the advertising and promotional strategyM > $f they opted for Central&s brands 3Splash& and 3A0ake&, they needed to kno0 shy the repurchase rate 0as lo0M :hat advertising and promotional strategyM Feeling that the issues 0ere 8uite comple", they called in a consultant $n vie0 of the urgency of the problem they re8uested him to submit his recommendations 0ithin a 0eek 7*e#!i(n#8 < Should Ambassador 'orchlights take up the distributions of bladesM $f yes, should they go in for their o0n 4private5 brand or should they up one or more of Central $ndustries brandsM = :hat are the product positions of the ma*or brandsM $s there an attractive product position available 0here Ambassador could introduce its brandM > :hat marketing strategy should be re8uired if Ambassador 0ants to create and sustain a successful brand position in the highly competitive blade marketM IIIIIIIIIII

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MO$EL 7UESTION PAPER MARKETING MANAGEMENT 'ime: > 9ours SECTION 6 A Ans0er and ive 8uestions All 8uestions carry e8ual marks < = > ? @ A B C :hat is modern marketing conceptM :hat are its elementsM :hat is societal marketing conceptM :hat is market segmentationM :hat are its bases and benefitsM :hat are the e"ternal environmental factors affecting marketing decisionsM :hat is marketing researchM Briefly e"plain the procedure of conducting marketing researchM :hat is %+C conceptM 9o0 does it helps the marketing manager in his decision, makingM :hat do you understand by channel conflictM 9o0 0ould you manage such conflictM :hat are the steps involved in selling processM 9o0 0ould you evaluate effectiveness of advertisingM Se !i(n 6 5 Ans0er and our 8uestions Ruestion N(' 15 is compulsory D :hat are the factors that determine process <G !"plain ne0 product development process << :hat are the general approaches to pricingM :hat are the pricing methods adopted in practiceM <= :hat are the factors that decide the choice of a distributions channelsM 4 ? " <@ Z AG5 Ma" Marks: <GG 4 @ K C Z ?G5

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<> :hat are the decision areas in advertisingM <? :hat are the ob*ectives of sales promotionM !"plain the methods of sales promotion <@ Attempt the follo0ing Case: #ecision (egarding 6e0 Sales 'raining %rogramme S*nri#e 5i# *i! I 5e"erage C(;3an2 Mr % 7 ;rishnamoorthy 0as the #irector of Sales and Marketing of Sunrise Biscuit N Beverage Company 9e gave lectuires at the salesmen training programme at the Company&s Bangalore Eone in 0hich a group of salesmen from his region participated Mr % 7 ;rishnamoorthy had to make a decision as to 0hether to continue the training programme or not 9e recalled that in the training programme 0hich had *ust ended, an e"perienced salesman of the company, Mr ; (a*agopal 0ho participated in the training said that the he had en*oyed the programme and found the topics discussed 8uite stimulating Jntil recently, the only type of the training done in the company 0as in the field 'he ne0 recruits 0ere attached to an e"perienced salesman 'he training period 0as A 0eeks At the end 0ritten test 0as conducted and assessment 0as made )f late, he company had began some rethinging on salesmen training because of changes in selling environment #ealers 0ere becoming more critical Competition become acute All these environmental changes made to difficult for the company to operate in the same manner that they had been kk*kl.*lk to 'here 0as also a concern, 0hether the older salesmen 0ere adaptable k**hh *khk to 'here 0as also a concern, 0hether the older salesmen 0ere adaptablibk*h ne0 methods of selling 'he sales training manager Mr -os0ami felt further training 0as d*hdfgsd in the area of selling techni8ue, consumer behariour etc to be effective i*khgfd ne0 competitive

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environment 9ence, Mr % 7 ;rishnamoorthy instructed Mr -os0ami to plan a ne0 training programme on an e"perimental basis 'he training programmes 0ere conducted at different [onal offices Mr % 7 ;rishnamoorthy 0anted to assess the impact of training conducted kg*dgd e"perimental basis According Mr -os0ami developed a rkgh*sdfkg*dsf evalution based on the follo0ing A sub*ective on the spot evaluation 0as made by the participants immediately after the programme 'he salesmen 0ere encouraged to send feedback of specific instances of the elements of the training programme, 0hich 0ere implemented 'he sales supervisors and the area sales managers 0ere also gave their opinion about the impact of training $t 0as also decided to carry out an ob*ective evaluating using an e"perimental design 'he general reaction regareding the training programme from salesmen and the area sales managers 0ere 8uite favourable Mr % 7 ;rishnamoorthy 0as pleased about this and asked Mr -os0ami to find out the total coast of training programme 9e also asked him to think about alternatives 0ays of utiliEing the same money in developing the salesmen Mr % 7 ;rishnamoorthy also 0ondered 0hether it may not be a better idea to directly recruit salesmen 0ho already had some professional training in salesmanship 9e also suggested that it might be 0orth0hile idea to train the sales supervisors 0ho could then directly train the salesmen in the field

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7*e#!i(n8 < = > ? @ Should the company go for the ne0 training programmeM Should the entire sales force be coveredM :hat should be the content and form of the training programmeM Can the selling efficiency be improved in some other 0ayM :hat is the role of training in the overall development of the sales forceM

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